A promising 1QFY2021

Profits of pharmaceutical distributor Hyphens Pharma looks promising for 1QFY2021 ended March following its highest ever quarterly sales.

This translated to a profit margin of 6.3% which comes amid a recovery in demand for its products in Vietnam, analysts from KGI Securities said in a June 28 note.

On a y-o-y basis, Hyphens Pharma’s revenue rose by 7.5% while its gross profit was up by 11.2%. Its overall bottom line correspondingly grew by 0.6%.

1QFY2021’s stronger performance comes despite the 5.6% dip in net profit registered in FY2020. This was “weaker than our expectations,” note analysts Megan Choo and Tan Jiunn Chyuan.

Even so, the analysts have upgraded their call on the group from “neutral” to “outperform”, at a revised target price of 43 cents. This is up 7 cents from their previous 36 cent call and comes from rolling forward estimates to base their valuation off forecasts for FY2022.

Choo and Tan add that they see potential upside for the stock’s base case price-to-earnings (P/E) ratio of 17 times.

For comparison, its mature competitors are maintaining a P/E average and forward P/E average of 19.9 times and 25.5 times respectively, the analysts note.

Looking ahead, Choo and Tan reckon that “we might not see the results of 1HFY2021 being replicated as Covid-19 cases started surging in end May 2021”.

“Hyphens may also face operational difficulty in 2HFY2021/1HFY2022 as their inventory in Vietnam runs low and distribution agreement renewals continue to be delayed,” they cautioned.

Even so, the duo like the company for its growing portfolio of high- margin proprietary brands.

This segment recorded a 26% jump between FY2019 and FY2020 — making this its most significant increase in the last four years.

This follows a higher take up for products under its Ocean Health brand as people turned to supplements to boost their immunity during the pandemic.

Other opportunities such as the attainment of an e-pharmacy license by its subsidiary — Pan-Malayan Pharmaceuticals — to provide telemedicine services as well as partnerships with online business-to-consumer (B2C) platforms for the sale of its proprietary products also bodes well for the company, say Choo and Tan.

The analysts expect the growth in e-commerce to generate consistent income from B2C sales as Hyphens taps on platforms such as Shopee, Lazada, Qoo10 and Amazon to sell its products.