Duopharma Biotech’s (DBB) post-results briefing was rather upbeat with steady revenue growth expectations in 2024 post finalisation of the approved product purchase list (APPL) tender (likely to completed by end-March or April), while its consumer healthcare (CHC) segment should see gradually improving numbers.
RHB Investment Bank (RHB), in its Malaysia Company Update today (Mac 8), said their medium- to long-term outlook remains upbeat, underpinned by the increase in non-communicable diseases (NCD) and the trends of an ageing society.
RHB maintains a BUY and DCF-based TP of MYR1.41, 21% upside with c.2% FY24F yield.
Key briefing takeaways
In 2023, DBB’s private sector division suffered a minor hiccup when its distribution agreement with an agency line was terminated – this decreased its expected turnover by c.MYR15m.
Nonetheless, it recovered some of the losses by the year-end and revenue grew by single digits, thanks to the resilient performance of its ethical specialty product segment.
Both its public and private sector divisions delivered commendable growth in 2023 except forCHC.
Nevertheless, DBB expectsCHC sales to begin picking up gradually, due to the low base of 2023. CHC sales in January and February have been encouraging, according to its survey with local pharmacies.
Moving forward, DBB intends to expand its range of CHC products,to decrease its reliance on sales of its vitamin C products.
Status of APPL contract renewal
The tendering process for the new APPL contract is expected to be concluded by late March or April, ie slightly behind the previous guidance of 1Q24, pending the finalisation of the confirmation letter.
RHB is positive on this development, as the drug supply contract has been fulfilled on a rollover basis (based on 2017 terms, when the USD/MYR rate was 4.20) as the contract terms do not reflect the latest FX rates.
RHB remains upbeat on DBB’s local sales post finalisation of the APPL contract, as the segment’s growth is expected to be underpinned by a higher budget allocation in 2024 (at MYR5.5bn vs 2023’s MYR4.9bn).
ESG
DBB is in the midst of identifying its Scope 3 carbon emissions. This study is likely to be completed by the end of 2024, and findings will be incorporated in its 2025 sustainability report. In the meantime, the group has completed installing solar panels at all three of its manufacturing sites to reduce its reliance on purchased electricity.
Earnings adjustment and valuation
RHB makes no changes to their earnings estimates. RHB’s unchanged TP of MYR1.41 has a parity ESG discount or premium applied, and implies 14x FY24 P/E – at 0.7SD below its 5-year historical mean.
RHB still likes DBB, due to: i) Its better-than-peers’ margin profile; ii)the Government’s higher budget allocation for the healthcare sector, and iii) the advent of trends of an ageing society. Key risks: Lower-thanexpected volumes sold, and depreciation of the MYR against the USD.
