Investment Highlights

• We reiterate BUY on Duopharma Biotech (Duopharma) with an unchanged fair value (FV) of RM1.95/share. This is based on a FY23F target PE of 17x, at parity to its 5-year average. There is no ESG-related adjustment based on our 3-star rating.

• Our FY23F-25F earnings are maintained following the group's proposal to acquire a slight equity stake in The Live Green Group (TLGG).

• Yesterday, Duopharma announced that the group has entered into agreements with TLGG for the purchase of 105,065 units of Series A preferred stock (or 0.65% equity interest) for US$1mil (RM4.7mil) cash. This is expected to be finalised by end-3Q2023.

• TLGG is a Delaware-based food-tech company incorporated in Oct 2019 with a vision of accelerating the world’s transition to a healthier and more sustainable place by developing a powerful database based on ancestral knowledge of plant nutrition and combining it with latest biotech and machine learning to create plant-only foods and solution.

• Their proprietary technology platform, Charaka, can analyse and replace synthetic processes with plant-only solutions. In a year, the valuation of TLGG increased from US$32mil to US$140mil (4.4x). This demonstrates the credibility and growth potential of TLGG's business model.

• The rationale of the acquisition is to allow Duopharma to collaborate with TLGG in the future by tapping on TLGG’s Charaka and expertise to explore the use of plant-only ingredients to replace animal, synthetic and ultra-processed ingredients in existing functional foods and pharmaceuticals to meet the demand for more sustainable wellness products, as well as those consumers with special dietary requirements.

• As there is unlikely for any material earnings accretion given the marginal investment, we have a neutral stance on this development as now, pending more clarity from management. Likewise, there will be no material increase in gearing.

• The stock currently trades at a compelling FY23F PE of 11.5x, which is 32% below the 5-year average of 17x. Dividend yield is also decent at 2.6%.

Source: AmInvest Research - 4 Jul 2023