We left Duopharma’s 1Q24 investor relations briefing with the following key takeaways: i) 2Q24 performance would be stronger than 1Q24, ii) several tenders are still under negotiation and iii) resurgence of exports in FY24. No change to earnings forecasts. Reiterate our Buy recommendation with an unchanged TP of RM1.47 based on a PE multiple of 16.0x CY25 EPS.

2Q24 Performance Would be Stronger

To recap, 1Q24 net profit surged 79.7% QoQ to RM15.3mn, ahead of revenue growth of 15.2% to RM193.0mn. The decent performance was attributed to higher sales from all sectors, particularly from the government segment. Management shared that the public sector contributed 47% of 1Q24 revenue as compared to 44% in FY23.

For 2Q24, we expect a continuing improvement in performance (QoQ and YoY basis), driven by the recently secured new APPL contracts from Pharmaniaga, worth RM578.1mn. These new APPL contracts would help to mitigate the sluggish consumer healthcare segment, which suffered c. 2-8% YoY revenue decline in 1Q24. We note that the demand for Vitamin C has tapered off as the country shifted to an endemic phase, leading to lower CHC sales of 15% and 25% YoY in FY22 and FY23 respectively.

In all, we are optimistic for 2024 as demand is levelling up. In our forecast, we project revenue and profit growth of 10.7% and 34.0% to RM780.1mn and RM70.6mn respectively in FY24.

Several Tenders Are Still Under Negotiations

Duopharma’s new APPL contracts to supply 86 pharmaceutical and/or nonpharmaceutical products, with a total estimated value of RM578.1mn to the offices and facilities operated by the Government of Malaysia will be valid and binding until 31December 2026. Management guided that the new APPL contract term is based on an exchange rate of RM4.70/USD (vs. RM4.20 in 2017). More importantly, we gathered that several APPL and non-APPL tenders are still under negotiations.

Meanwhile, Duopharma’s current insulin contract (April 2022- April 2025) with a total contract value of RM375mn is pending for renewal. We understand that the insulin tender has closed and 2 of the existing suppliers, i.e.: Biocon via Duopharma and Novo Nordisk, have submitted their tenders. We expect the outcome would be announced after September as discussion on the insulin tender would likely begin after the finalisation of all APPL contracts in September 2024. Overall, we expect the supply of insulin to continue coming from both Duopharma and Novo Nordisk, albeit Duopharma’s contract might be lower due to the non-fulfilment of some of the insulin orders. Positively, we expect the insulin contribution to be higher at RM85mn for FY24 (vs. estimated RM75mn in FY23) as the expansion of Biocon’s fill and finish lines will be completed by 4Q24.

Resurgence in Exports in FY24

Management shared that the group is actively expanding its business in Indonesia, Vietnam and Singapore. Currently, the export segment contributes 7% to revenue and the group is targeting a growth of 20-30% in 2024. Overall, we expect the export segment revenue to increase to RM67.5mn (vs. RM54.2mn in FY23), boosted by the higher demand from the ASEAN region.

Impact

No Change to Our FY24-26 Earnings Projections.

Valuation & Recommendation

We maintain Buy on Duopharma with a TP of RM1.47/share based on an unchanged PE multiple of 16.0x EPS.

Source: TA Research - 10 Jun 2024