Duopharma fourth quarter in good territory despite weak orders

PETALING JAYA: Despite the seasonally weaker orders from the government, Duopharma Biotech Bhd’s fourth quarter (4Q22) revenue may be supported by private ethical and consumer healthcare (CHC) sales and exports.

CGS-CIMB Research said in a report yesterday that Duopharma’s CHC sales going into the 4Q22 remain stable or higher quarter-on-quarter as advertising and promotion campaigns have been back-loaded to the final quarter.

“Duopharma said CHC revenue rose marginally year-on-year (y-o-y) in 3Q22 (ended Sept 30), with higher demand for analgesics, paracetamol and cough or cold medicines, offsetting lower vitamin C sales,” CGS-CIMB Research said.

The research house added that Duopharma, after the signing of the distribution agreement with 2.7%-owned associate SCM Lifescience on Sept 27, plans to distribute a range of anti-hair loss CHC products locally from the first quarter of 2023 onwards.

“For the ethical segment, Duopharma is looking at potentially manufacturing its own erythropoietin biosimilar and Erysaa locally.

“This would be part of Duopharma’s longterm strategy to expand its portfolio of biosimilars and localise their production,” CGSCIMB Research added.

This will see Duopharma’s United States dollar exposure decrease in the longer-term, as biosimilars do not require the use of imported active pharmaceutical ingredients (API).

According to CGS-CIMB Research, Duopharma expects cost pressures in the coming quarters, arising from elevated API costs, partly due to the stronger US dollar against the ringgit.

RHB Research stated API costs, a major raw material component accounting for 50% to 60% of total production costs, have begun to decline over the last three months.

Commenting on this, RHB Research said: “At the moment, Duopharma has sufficient API on hand to cater for demand, guiding that the pressing issue of raw material shortages has dissipated.”

“Other issues, such as a labour shortage, have also begun to normalise,” RHB Research added.

With regards to the government orders, RHB Research noted that Duopharma’s approved product purchase list contract with the Health Ministry is due for extension on Dec 31.

Although Duopharma has not yet received a response from the ministry, the research house expects the contract to be extended by six to 12 months.

“We do not rule out the possibility that Duopharma may eventually have to bear with the contract terms, should the procurement rate still be based on the 4.20 USD/MYR rate.

This is because the contract was initially entered into in 2017,” RHB Research said.

The research house added that if so it would result in a squeeze on Duopharma’s margins going forward.

RHB Research estimates the approved product purchase list to account for 18% of the pharma company’s revenue in 2023.

According to RHB Research, Duopharma is eyeing merger and acquisition opportunities next year, as the company looks to expand its market share in the generic drug manufacturing industry.

Taking into account the stronger than expected ethical classic and specialty sales, RHB Research raised its earnings forecast on Duopharma for FY22 and FY23 by 15% and 7%, respectively.

CGS-CIMB Research reiterated an “add” call on the counter with an unchanged target price (TP) of RM1.85 per share, while RHB Research maintained a “buy” call and revised its TP on Duopharma by 20 sen to RM1.84 per share.