Review

• CCM Duopharma Biotech Bhd’s FY17 net profit of RM42.5mn (+56.7% YoY) came above our estimates at 108.7%. The variance was due to lower-thanexpected tax rate during the quarter. Revenue was in line, accounting for 103.3% of our estimates.

• YoY, FY17’s revenue and PBT grew respectively by 49.5% to RM468.0mn and 64.5% to RM51.8mn. The robust performance was due to: i) effect of the RM300.0mn contract from the Ministry of Health to supply insulin to all government hospitals and clinics effective 2 December 2016 to 1 December 2019, and ii) shift to more specialty products which command a higher margin.

• QoQ, PBT margin drop by 9.7% to RM12.8mn as there was lower demand from the government sector and also additional factory maintenance cost.

• A final dividend of 6.0sen/share was proposed. (FY17: 8.5sen/share vs. FY16: 6.5sen/share)

• Separately, the group announced a bonus issue of 4 bonus share for every 3 shares held. This will potentially result in the issue of additional 371.9mn new shares. We are positive on this as it will help improve trading liquidity.

Impact

• We raised our FY18/19/20 earnings estimates higher by +8.0%/8.0%/8.7% after raising our growth assumptions as we see more introduction of new products into the market.

Outlook

• We expect the group to continue growing on the back of sustained increase in demand for pharmaceuticals from both the public and private sector. In terms of the strengthening Ringgit against the USD, it will help lower its cost of raw materials as well as packaging materials.

Valuation

• Our TP for CCM Duopharma Biotech Bhd is revised higher to RM3.40/share (RM2.70/share previously), based on a higher target PE of 21.0x (previously 18.0x) against CY18 EPS. The upgrade in PE multiple is to reflect its growing exposure to more niche products. Reiterate Buy.

Source: TA Research - 28 Feb 2018