Duopharma earnings set to improve this year

PETALING JAYA: Duopharma Biotech Bhd is likely to see a recovery in its consumer healthcare (CHC) segment, while sales to the government sector is also expected to increase in 2024.

In a report, TA Research said it remains optimistic on Duopharma’s growth prospects with catalysts coming from these two factors.

“To recap, nine-month 2023 (9M23) net profit dipped 16.6% to RM44.1mil due to weaker CHC sales, the upward adjustment in the electricity tariff, a weak ringgit and higher finance cost.

“For the fourth quarter of 2023 (4Q23), we expects sales to remain flattish quarter-on-quarter.

“Positively, we expect profit to improve to between RM16mil and RM18mil compared with RM9mil in 3Q23, driven mainly by investment tax allowances,” it added.

The research house said the pharmaceutical company’s management anticipates that CHC sales will pick up gradually owing to the low-base effect in 2023 and launch of new products.

“From FY21 to FY23, the government sector accounted for 43% to 45% of the group’s revenue.

“For this year, we note that the healthcare sector would receive a substantial allocation of RM41.2bil, reflecting an increase of 13.5% compared with the RM36.3bil allocation in 2023.

“As such, we expect the government-sector contribution to increase and bring about two key benefits to the group,” said TA Research.

Firstly, it said the new approved product purchase list (APPL) contract is expected to be concluded by 1Q24.

TA Research said this is positive given that the APPL contract is currently carried out on a roll-over basis based on pricing and exchange rates set in 2017.

“Management shared that in the new APPL contract, the volumes would likely be higher.

“As far as pricing is concerned, we believe that it would be slightly higher, as the new contract term is expected to be based on the exchange rate of RM4.60-RM4.70 to the US dollar (versus RM4.20-RM4.25 in 2017).

“Besides, we expect the Insulin contract contribution to increase to RM90mil in FY24 versus between RM60mil and RM65mil in FY23,” the research house added.

On the expansion front, TA Research said management reaffirmed that the transfer of its products to the new K3 plant in Klang is progressing as planned.

The new K3 plant has 50% more capacity compared with the company’s K1 plant and received its certificate of completion and compliance in 4Q23.

“We gather that Duopharma is in the midst of transferring all K1 products to K3, which is expected to be running at 40% to 50% utilisation (versus K1 utilisation of 80%), once fully transferred by 4Q24.

“As for its Bangi facility which manufactures a wide range of over-the-counter products, we understand the utilisation rate is at 45% to 55%.

“We expect the Bangi plant-utilisation rate to increase by 2% to 5% upon the award of new APPL contracts.”

TA Research has a “buy” call on Duopharma with a RM1.47 target price based on price-to-earnings multiple of 16 times 2024 earnings.