Review

• Duopharma’s FY23 net profit of RM52.6mn (-24.9% YoY) came in below expectations, accounting for 83.4% and 81.4% of ours and consensus’ fullyear forecasts respectively. The variance was due to higher-than-expected tax.

• FY23 PBT decreased 25.4% to RM63.3mn despite higher revenue of 1.1% to RM704.7mn. We attribute the weaker performance to: i) decrease in demand from the consumer healthcare sector of circa-25%, ii) higher electricity tariff, iii) higher finance costs and iv) temporary shutdown of the small volume injectable plant.

• In terms of sales mix, local sales remained as the key contributor to the group, accounting for 92.3% of revenue while exports accounted for 7.7%.

• 4Q23 net profit declined 5.2% to RM8.5mn while revenue was flat (-1.0% QoQ to RM167.5mn) despite the seasonality weaker quarter. Private ethical specialty sector and prescription pharmaceutical market mitigated the lower public health sector contribution (government does not spend much on medical procurement in December).

• A second interim dividend of 1.8sen per share was declared, bringing FY23 dividend to 2.3sen per share (similar with FY22 DPS).

Impact

• No change to our earnings estimates pending investor relations briefing soon.

Outlook

• We believe that earnings weakness has bottomed in 2023. We are optimistic on its FY24 prospects, driven by the government’s higher budget allocation of RM41.2bn (+13.5% YoY) to the healthcare sector.

• Currently, the supply and delivery of APPL products are based on purchase orders as the new supply agreement is currently in progress. However, Duopharma is waiting for the formalised contracts for future earnings recovery and sustainability. In addition, we believe that the consumer healthcare segment has bottomed out too. Note that the contract period of the supply agreements for the supply of APPL products had expired on 31 December 2023.

Valuation

• Maintain Buy on Duopharma with an unchanged TP of RM1.47/share based on an unchanged 16.0x CY24 EPS.

Source: TA Research - 23 Feb 2024