KUALA LUMPUR: Pharmaceutical company, Duopharma Biotech is still on strong footing despite weaker than expected sales in the third quarter (3Q) of 2023 from the consumer healthcare.
Duopharma's 3Q23 core profit slipped 62 per cent year-on-year to RM9.9 million, bringing nine-month numbers to RM52.5 million (-38 per cent YoY).
The nine-month core profit made up 64 per cent of RHB Research's full-year estimate and 66 per cent of concensus' full-year estimate.
Profits were dragged down by sluggish consumer demand for health supplement products post pandemic, while the public sector segment was dragged by a shorter tendering period from the procurement of approved product purchase list supply, leading to a local sales supply segment.
RHB Research expects sequential improvements in public sector sales in the coming quarters on higher budget allocations for drug procurements to the Health Ministry (2024: RM5.5 billion, 2023: RM4.9 billion) and approved product purchase list (APPL) contract extension until December 2023. The contract is expected to be reviewed with a new contract term by 1H24.
RHB Research has a RM1.35 a share target price for the company's stock.
Its target price incorporates four per cent environment, social and governance (ESG) discount to its intrinsic value for Duopharma, as its ESG score is below the country median.
RHB Research has maintained a Buy call on Duopharma.
It deems the current lower-than-five-year-average valuations as unjustified, given its better-than-peers margins profile and long-term growth potential from investments into higher-value offerings, eg oncology and biosimilar products like ERYSAA, a halal-certified erythropoietin, or EPO, that treats anaemia in patients with chronic kidney diseases.
Key risks to its recommendation include lower-than-expected volumes sold and depreciation ringgit against the US dollar.