RHB Research has maintained its buy call on Duopharma Biotech Bhd with a higher target price (TP) of RM1.83 from RM1.65 on expectation of its vitamin C sales surging due to Covid-19 arising from the change in consumer behaviour.
“We expect Duopharma’s vitamin C sales to surge – this is a global trend. We gather from media reports that vitamin C sales in the US, China, and Japan have spiked, which may be caused by consumer belief that boosting immunity is important during the ongoing pandemic,” said the research house in a note on May 12.
In Malaysia, Duopharma is a market leader for vitamin C products via its Flavettes and Champs brands. “Note that vitamin C sales contribute 10-15% to sales. This should lead to better earnings in FY20.
“Our TP implies 20.5x FY21 P/E, or +1.4SD against its two-year average price-earnings (P/E). The premium is justified, given the stable revenue contributions from government hospitals and a decent dividend yield of 4.3%,” the research house said.
Duopharma registered a net profit of RM55.3 mil in FY19 (+16% year-on-year, yoy). The 10.4% return on equity (ROE) is the third consecutive yoy improvement from FY16’s 5.9%.
RHB said the company has benefited from higher demand for pharmaceutical products from both the private and public healthcare sectors.
“We expect Duopharma to benefit from the record-high allocation for the healthcare sector by the government of RM30.6 bil. This represents a 6.6% yoy increase. Recall that the company’s sales to the government made up 49% of FY19’s total sales,” it said.
Separately, as Covid-19 cases have declined significantly in China, the supply chain risk for the pharmaceutical industry has eased. This is because factories there have resumed operations.
However, RHB said risks include a higher-than-expected USD exchange rate (60% of its raw materials are in USD against 8% of sales from exports) and lower-than-expected sales.
At 11.02am, the counter was trading at RM1.57, down a sen from Friday’s close, giving the company a market capitalisation of RM1.07 bil. — May 12, 2020.
