Year 2025 is expected to be a volatile year ahead.

An ideal strategy would be to position into defensive stocks with potential huge profit growth and dividend growth. 

Duopharma Biotech Berhad is the BEST pick as it is the most undervalued defensive stock. 

On 30 April 2024, Duopharma has received 11 Letters of Offer from Pharmaniaga Logistics Sdn Bhd for the supply of pharmaceutical and/or non-pharmaceutical products to the offices and facilities operated and controlled by the Government of Malaysia. These contracts amounting to RM 578.1mil are binding until 31 December 2026. 

On 30 October 2024, Duopharma received an additional 5 Letters of Offer. These contracts amounting to RM 87.7mil are binding until 31 December 2026. 

Therefore, in total, Duopharma has received contracts amounting to RM 665.8mil, binding until 31 December 2026. This will contribute around RM 221.9mil per annum to Duopharma's annual revenue. 

Evidently, Duopharma financial performance for 2024 has improved significantly. Duopharma has achieved the followings in 2024 : 

i) Record quarterly revenue in Q2 2024
ii) 7.8% Increase in Profit After Tax for 9 months 2024 vs 9 months 2023
iii) Doubling of First Interim Dividend from 0.5 sen in 2023 to 1.0 sen in 2024

Duopharma financial performance is forecasted to improve significantly for FY 2025 and beyond. 

The potential catalysts that will bring Duopharma to greater heights are as follows: 

i) API Price Normalisation

API Price has normalised to Pre-Pandemic level, an estimated decrease of 15%-40%.

( Source : https://www.livemint.com/industry/api-prices-expected-to-stabilise-by-q4fy25-says-akums-drugs-maheshwari-weak-demand-china-11731331432433.html )

The normalisation of API Price will give rise to significant margin improvement to Duopharma.

Assuming 60% of Cost of Sales consist of API (RM296.25mil), the average normalisation in API Price and the estimated contribution to Duopharma's profit are as follows:

ii) Strengthening of Ringgit

Strengthening of Ringgit will give rise to a potential savings as current contract terms are based on exchange rate of RM 4.70/USD.

At current rate of 4.4655, Duopharma will have a savings of 4.9%.

Assuming 60% of Cost of Sales consist of API (RM 296.25mil), and 60% thereof purchased from overseas, denominated in USD (RM 177.75mil), the strengthening of Ringgit is expected to give rise to a savings of RM 8.71mil.

iii) Potential increase in dividend 

As Duopharma financial performance is forecasted to improve significantly, the dividend payout is expected to increase accordingly. 

(Details as per table below)

​

The table below is the expected forecasts for FY 2025 and FY 2026. 

Duopharma is forecasted to achieve a record Profit After Tax for FY 2025 and FY 2026. 

For FY 2025, Duopharma is expected to achieve RM 121.1mil in PAT, translating to EPS of 12.6 sen.

For FY 2026, Duopharma is expected to achieve RM 145.6mil in PAT, translating to EPS of 15.1 sen.

Based on FY 2025 EPS of 12.6 sen, Duopharma is currently trading at a PE of 9.93x, significantly lower than its five-year pre pandemic average mean PE of 16.7x. 

Hence, the target price for Duopharma based on FY 2025 EPS of 12.6 sen PE of 15x, will be RM 1.89, translating to a potential upside of 51.2% from current price. 

Furthermore, with the expected increase in profit, dividend payout is expected to increase accordingly. This will benefit investors who are seeking for stable and high dividend yield. Details as follows:

In conclusion, Duopharma is the MOST UNDERVALUED defensive stock, with potential 50% upside (RM 1.89) coupled with potential high dividend yield. 

​