• We maintain BUY on Duopharma Biotech (Duopharma) with an unchanged fair value (FV) of RM1.89/share, based on an FY23F target PE of 17x, at parity to its 5-year mean. There is no ESG-related adjustment based on our neutral 3-star rating.

• Yesterday, Duopharma received a letter of notification from Pharmaniaga Logistics for the extension of supply agreements or approved products purchase list (APPL) contracts to 30 Jun 2023 from 31 Dec 2022 to supply pharmaceutical and/or nonpharmaceutical products to hospitals and clinics under the Malaysian government.

• To recap, Duopharma was awarded APPL contracts in 2017 for a 3 year from 2017 to 2019. The contracts were extended twice as follows: (a) 25 months to 31 Dec 2021, and (b) 12 months to 31 Dec 2022.

• The contracts were pegged to US$ to MYR exchange rate of 4.2-4.3 in 2017, which is quite similar to latest rate of 4.26. Notably, the contracts are worth RM150-250mil per year and accounts for 25% of Duopharma’s 9MFY22 revenue.

• Nevertheless, we view this APPL contract extension as in line with our expectations and have already been accounted in FY23-24F earnings. Duopharma’s management has previously guided for the extension in the Nov 2022 analyst briefing.

• We continue to like Duopharma as the largest local pharmaceutical manufacturer which can leverage on: (a) the rising take-up of generic drugs in Malaysia, (b) upcoming industry’s patent cliff in 2022-2026 and booming biosimilars with the company’s strength in R&D and state-of-art manufacturing facilities; and (c) evergrowing Vitamin C market with its popular brands, Champs and Flavettes.

• At this juncture, we view the stock trading at a compelling FY23F PE of 14.7x at an unjustified 14% discount to its 5-year mean of 17x.

Source: AmInvest Research - 26 Jan 2023