Results preview

Duopharma is expected to release its 4Q24 results next month. We expect the quarterly profit to come in the range between RM12.0mn and RM15.0mn, or 41.1% to 76.4% higher than the net profit of RM8.5mn for 4Q23. The increase in profit is expected to come from higher sales, driven by a new APPL contract and improved operating efficiency.

FY25 would be boosted by lower API Prices

We understand that prices of Active Pharmaceutical Ingredient (which account for 50-60% of Duopharma’s cost) have dropped by at least 10% YoY and reverted to pre-pandemic levels. This was driven by higher supply from China and India. As such, we see little risk in supply shortage and expect higher operating margins for FY25. Overall, we expect to see the benefits of lower API prices from 1Q25 onwards after the old raw material inventory is depleted. Our sensitivity analysis suggests that Duopharma could save approximately RM14mn for every 5% change in API prices.

In addition, the group would benefit from the stronger Ringgit as the new approved products list (APPL) contract terms are based on an exchange rate of RM4.70/USD (vs. RM4.20 in 2017, under the old APPL). Our sensitivity analysis suggests that every 5% weakening of the USD against the Ringgit will lift Duopharma’s earnings by circa-4.9%. All in all, we are optimistic that FY25 would be a record profit year for Duopharma, with earnings expected to grow by 43.1% to RM88.4mn.

Expect insulin sales to remain stable

To recap, insulin sales accounts for c. 10-15% of Duopharma’s annual sales. Its 3-year contract worth approximately RM375mn to supply Insugen-Insulin Human Formulation will end on 28 April 2025. In our forecast, we expect insulin contribution to be higher at RM85mn for FY24 (compared to an estimated RM75mn in FY23). Going forward, we remain optimistic that the group would continue to supply human insulin to MOH. Duopharma’s insulin partner, Biocon remains committed to expanding its business in Malaysia. Prime Minister Datuk Seri Anwar Ibrahim recently stated that Biocon has invested USD350mn in Malaysia and contributed to the country’s export value of USD560mn.

Forecast

No change to our FY24-27 earnings projections.

Valuation & Recommendation

After rolling forward our base year valuation to CY26, we arrive at a new target price of RM1.62 (previously RM1.50), based on a target PE multiple of 16.0x and 3% ESG premium. Reiterate Buy

Source: TA Research - 15 Jan 2025