• Maintain BUY and DCF-based TP of MYR1.41, 21% upside with c.2% FY24F yield. We emerged from Duopharma Biotech’s post-results briefing feeling slightly upbeat. It expects to book steady revenue growth in 2024 post finalisation of the approved product purchase list (APPL) tender (likely to completed by end-March or April), while its consumer healthcare (CHC) segment should see gradually improving numbers. Our medium- to long-term outlook remains upbeat, underpinned by the increase in non-communicable diseases (NCD) and the trends of an ageing society.

• Key briefing takeaways. In 2023, DBB’s private sector division suffered a minor hiccup when its distribution agreement with an agency line was terminated – this decreased its expected turnover by c.MYR15m. Nonetheless, it recovered some of the losses by the year-end and revenue grew by single digits, thanks to the resilient performance of its ethical specialty product segment. Both its public and private sector divisions delivered commendable growth in 2023 except for CHC. Nevertheless, DBB expects CHC sales to begin picking up gradually, due to the low base of 2023. CHC sales in January and February have been encouraging, according to its survey with local pharmacies. Moving forward, DBB intends to expand its range of CHC products, to decrease its reliance on sales of its vitamin C products.

• Status of APPL contract renewal. The tendering process for the new APPL contract is expected to be concluded by late March or April, ie slightly behind the previous guidance of 1Q24, pending the finalisation of the confirmation letter. We are positive on this development, as the drug supply contract has been fulfilled on a rollover basis (based on 2017 terms, when the USD/MYR rate was 4.20) as the contract terms do not reflect the latest FX rates. We remain upbeat on DBB’s local sales post finalisation of the APPL contract, as the segment’s growth is expected to be underpinned by a higher budget allocation in 2024 (at MYR5.5bn vs 2023’s MYR4.9bn).

• ESG. DBB is in the midst of identifying its Scope 3 carbon emissions. This study is likely to be completed by the end of 2024, and findings will be incorporated in its 2025 sustainability report. In the meantime, the group has completed installing solar panels at all three of its manufacturing sites to reduce its reliance on purchased electricity.

• Earnings adjustment and valuation. We make no changes to our earnings estimates. Our unchanged TP of MYR1.41 has a parity ESG discount or premium applied, and implies 14x FY24 P/E – at 0.7SD below its 5-year historical mean. We still like DBB, due to: i) Its better-than-peers’ margin profile; ii) the Government’s higher budget allocation for the healthcare sector, and iii) the advent of trends of an ageing society. Key risks: Lower-than- expected volumes sold, and depreciation of the MYR against the USD.

Source: RHB Research - 8 Mar 2024