RHB Research puts buy call on Duopharma

RHB Research has initiated coverage on Duopharma Biotech Bhd with a buy call at RM1.58 and target price (TP) of RM1.88 and expects a three-year earnings compound annual growth rate (CAGR) of 15%.

In a Jan 8 note, the research house noted that this is due to higher demand for pharmaceutical products – in line with rising health awareness, better efficiency from its new, highly active pharmaceutical ingredients (HAPI) plant from the first quarter of 2020 (1Q20), and improved export sales.

Duopharma Biotech’s cumulative nine months of the financial year 2019 (9MFY19) earnings grew 30% year-on-year (yoy) to RM43.2 mil on a 15% yoy improvement in revenue and an 18.5% higher earnings before interest, taxes, depreciation and amortisation (Ebitda) margin (9MFY18: 16.5%).

The research house said it expects a lower FY19 forecast dividend of 3.7 sen (FY18: 5.3 sen) before recovering to 4.2 sen in FY20F.

“The lower dividend is due to the need to fund the construction of new plants in Klang (K3 and K5). As the expansion will boost capacity by 50% in 2021, the benefits should outweigh the short-term lower dividend impact,” it said.

RHB Research added that the group’s market capitalisation of RM1.08 bil is the highest among the listed pharmaceutical companies on Bursa Malaysia.

“Among the top 10 pharmaceutical companies in Malaysia, it has a market share of 28%. Duopharma is a market leader for vitamin C products via the Flavettes and Champs brands. Other products distributed/manufactured are for diabetes, hepatitis C, cancer and kidney disease treatments,” it said.

The research house said foreign exchange volatility is also a risk as around 8% of sales are for export while about 60% of costs are denominated in US dollars.

Duopharma Biotech’s share price opened 1.56% lower at RM1.55 before the midday break on Jan 8.


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