Duopharma likely to see earnings recovery in 4Q

PETALING JAYA: Duopharma Biotech Bhd will likely see an earnings recovery from the fourth quarter of 2023 (4Q23) as sales recover on improved demand.

For perspective, the contract period of the pharmaceutical company’s agreement for the supply of Approved Products Purchase List (APPL) products has been further extended to Dec 31, 2023.

TA Research said it anticipated stronger sales for Duopharma in 2024, driven by the new APPL contract, accounting for about 20% to 25% of revenue, and recovery in the consumer healthcare segment, representing 15% to 20% of revenue.

The brokerage reiterated its “buy” call on Duopharma, with an unchanged target price of RM1.47 based on 16 times forward earnings.

Duopharma, which is 44.1% owned by Permodalan Nasional Bhd, reported a net profit of RM8.97mil in 3Q23, down by 45.13% year-on-year (y-o-y) amid a drop in local sales, particularly in the consumer healthcare segment.

Revenue was down by 4.43% y-o-y to RM169.24mil.Earnings per share for the quarter under review came in 0.93 sen.

No dividend was declared for the quarter.

Cumulatively, for the first nine months of FY23, the group’s net profit fell by 16.63% y-o-y to RM44.14mil.

Meanwhile, revenue was lower by 1.38% y-o-y at RM537.23mil.

TA Research said the results were within its expectations, expecting Duopharma’s 4Q23 would be boosted by a reinvestment tax allowance of about RM10mil for a new facility.Meanwhile, RHB Research said Duopharma’s 3Q23 results were below its expectations.

However, the brokerage said it expected Duopharma’s upcoming growth to be underpinned by robust drug procurement from the public sector on higher budget allocations and from the private sector, renewal of the APPL and potential synergies generated from the group’s investee firms.

RHB Research maintained a “buy” call on the counter, with a lower target price of RM1.35, compared with RM1.38 previously.

The research house said the counter’s valuations are appealing, currently trading at 12 times forward earnings, below its five-year mean of 17 times.

“We deem this as unjustified, given its better-than-peers margins profile and long-term growth potential from investments into higher-value offerings, such as oncology and biosimilar products,” the research house said.

“We expect sequential improvements in public-sector sales in the coming quarters on higher budget allocations for drug procurements for the Health Ministry; and the APPL contract having been extended until December 2023 and it is expected to be reviewed with a new contract by the first half of 2024,” RHB Research added.

It said Duopharma’s growth momentum from the private sector should continue to be anchored by the pick-up in international patients, the country’s ageing population and support from the government’s reform agenda.