Kotra Industries Bhd (Kotra) should be a major beneficiary of pent-up consumer demand for neutraceutical products amid the recent resurgence of Covid-19 cases, according to RHB Investment Bank (RHB IB).
In its Malaysia Company Update, the research house said Kotra’s over-the-counter (OTC) products, which is 60% of its topline, offer immunity benefits to consumers at different stages of life.
“The stock is trading at 10x FY24F P/E, in line with its historical mean. We trim our ESG score to 3.1 from 3.2, after revisiting the metrics for all three pillars,” it said today (Dec 19).
It maintains its BUY call, with a new TP of MYR5.40 from MYR5.60, 16% upside with 5% FY25 (June) yield.
“We leave our earnings estimate unchanged. Our TP is based on 12x CY24F PE, or 0.8SD above its pre-pandemic 5-year historical mean of 11x, as the pick-up in consumer discretionary spending could boost the demand for neutraceutical products next year.
“Our TP incorporates a ESG premium of 2% as Kotra’s ESG score is a notch above the country median,” it said.
The research house said the rise in confirmed Covid-19 cases could spike up the demand for cough and flu medicines – just like what happened in 2H22.
“(This is due to) the higher chances of infection from the Covid-19 variant, coupled with a low incidence of wearing face masks in public again.
“The situation is expected to worsen in tandem with the year-end festive season and school holidays, according to Health director-general Dr Muhammad Radzi Abu Hassan.”
It was reported the number of Covid-19 cases in Malaysia surged by 88% to 12,757 during the second week of December, from 6,796 the week prior.
RHB IB said its base case scenario indicates that Kotra’s over-the-counter (OTC) segment may see 3% year-on-year (YoY) growth in FY24 net profit.
This is if consumer demand be greater than expected, assuming a 13% YoY increase, in line with historical data such as 2021 retail pharmacy sales growth.
It added the increase in health awareness among consumers in terms of boosting immunity against Covid-19 and other noncommunicable diseases (NCDs) should be a near-term re-rating catalyst that will propel the growth of the consumer healthcare product market.
“According to Vodus Research, Malaysians have become more health-conscious due to the pandemic, as well as the high rates of obesity and diabetes. In 2021, 50% of all Malaysians consumed health supplement products that include vitamin C, multivitamins and fish oil,” it said.
Therefore, the research house is expecting a rosier GDP growth outlook for Malaysia in 2024, underpinned by a pick-up in economic activity by 1H24.
“An easing monetary policy would further support global economic conditions, as nutraceutical products are regarded as discretionary products.
“Kotra’s mid- to longer-term growth prospects should be anchored by rising health awareness among consumers and the trends associated with an ageing society.
“The construction of a new manufacturing line, which will be completed next year could offer it the opportunity to tap into manufacturing products in different dosage forms that it currently is not involved in,” it said.
