• Reiterate BUY, unchanged DCF-derived TP of MYR1.95, 17% upside with c.4% FY20F yield. Our TP implies 21.1x FY21F P/E (+1.6SD above the 2-year average P/E). The premium is justified, due to Duopharma Biotech’s stable 3-year forward earnings CAGR of 6.7%. Its operations have remained intact during the Movement Control Order (MCO). Its investment in SCM Lifescience (SCM) should bear fruit soon. Lastly, we are positive on its latest investment in digital therapeutics company Naluri Hidup.

• Takeaways from webinar. Management discussed its 1Q20 earnings and shared its outlook. Recall that 1Q20 core earnings of MYR19.4m improved by 35% YoY and 60% QoQ. We gather that the outperformance was due to its solid private sector sales.

• Minimal impact to supply chains during the MCO. As the pharmaceutical industry was classified as an essential service during the MCO, Duopharma’s operations were unaffected. The company managed to ensure the smooth delivery of raw materials from its vendors, as the lockdown restrictions in China and India kicked in sequentially.

• Investment in SCM Lifescience bears fruit. In 2018, Duopharma bought a 5.8% stake in South Korea’s SCM for MYR20.24m, as a part of its strategy to diversify into biotherapeutics. Since then, SCM has acquired a 51% stake in CoImmune, an entity with an immuno-oncology focus – which further bolstered SCM’s clinical trial expertise. We believe the investment is timely, as regulations on stem cells in Malaysia will be enforced in 2021. SCM is slated to be listed on the KOSDAQ on 17 Jun. Based on SCM’s IPO price of KRW17,000 (or MYR61.00) per share, we estimate that Duopharma’s investment will appreciate by 70%.

• Invested USD0.25m in digital therapeutics company Naluri Hidup. We are positive on this, as we believe digital therapeutics will be the future of healthcare. Note that Naluri Hidup has developed a digital health platform called Naluri App to assist its users with chronic conditions to better manage their health. Naluri App also focuses on therapeutics as well as positive behavioural modification, to ensure continued wellness for patients.

• Keep BUY, with a TP of MYR1.95. We maintain our FY20-22 earnings estimates. We like this stock, as it should benefit from SCM’s IPO in the near term. Other strengths are its stable 3-year forward earnings CAGR of 6.7%, decent dividend yield of 4%, and able management team.

Source: RHB Research - 11 June 2020