• Still BUY, new MYR1.41 TP (DCF) from MYR1.35, 16% upside. We walk away from Duopharma Biotech’s post-results briefing feeling slightly upbeat. It is likely to chart steady revenue growth in 2024 post finalisation of the Approved Product Purchase List (APPL) tender (likely to be completed by 1Q24) and increase in budget allocations for the healthcare sector. We remain positive on its mid- to long-term prospects, underpinned by the rise of non-communicable diseases or NCDs and ageing society trend. We incorporate a 0% ESG premium to our TP from -4% previously.

• Key takeaways. Firstly, private sector sales saw a minor hiccup, given that one of the agency lines terminated its distribution agreement with DBB. Nevertheless, management believes the loss of revenue may be compensated by a replacement alternative supplier, of which discussions are ongoing. Secondly, the weakness in the consumer healthcare (CHC) segment is expected to extend into 4Q23, albeit at a lower quantum. Moving into 2024, DBB anticipates CHC sales to begin picking up gradually owing to the low base effect in 2023. Thirdly, 4Q23 is set to see sequential weaker growth on seasonality, in conjunction with the Health Ministry’s accounts closing period.

• The APPL contract has been rolled over until December after it expired in June. The tendering process for the new APPL contract has started and is expected to be concluded by 1Q24. We are positive with this development, as the drug supply contract has been carried out on a rollover basis (based on 2017 terms) and its contract terms do not reflect the latest exchange rates. We remain upbeat on DBB’s local sales post finalisation of the APPL contract, as the segment growth is set to be underpinned by higher budget allocations in 2024 (MYR5.5bn vs 2023’s MYR4.9bn).

• ESG. DBB begin to disclose Scope 1-2 greenhouse gas (GHG) emissions in its 2022 sustainability report. It also places greater emphasis in continuing to identify Scope 3 emissions, which we think will be incorporated in its 2025 sustainability report. We appreciate the group’s initiatives in identifying its various aspects in Scope 3 emissions while recognising the importance of reducing its carbon footprint as set out in DBB’s plan to achieve net zero carbon emissions by 2050. The group had recently won The Edge ESG Award (GOLD category) under the healthcare sector. As such, we raise our ESG score for DBB to 3.0 from 2.8 previously.

• Earnings adjustments. We make no changes to our earnings estimate.

• Maintain BUY, with a higher TP of MYR1.41. Our TP implies 14x FY24 P/E, 0.7SD below its 5-year historical mean. We still like DBB, underpinned by better-than-peers’ margins profile, higher budget allocations for the healthcare sector, and ageing society trend. Key risks: Lower-thanexpected volumes sold and depreciation of the MYR against the USD.

Source: RHB Securities Research - 22 Nov 2023