Review

• CCM Duopharma Biotech Bhd’s 1QFY18 net profit of RM10.6mn (+23.5% YoY) came in within our estimates at 23.4% of full-year forecast.

• YoY, PBT grew 18.6% to RM13.3mn, ahead of revenue which grew by 10.1% to RM133.3mn. The strong performance was due to i) higher demand from public and private healthcare sector, and ii) lower cost of production due to strengthening of Ringgit (around 80% of its raw materials are imported). Government sector continued to be the main contributor, accounting for circa-60% of its revenue. Meanwhile, its over-the-counter products remained resilient backed by stable demand for its vitamin C products such as Champs, Flavettes and Proviton.

• QoQ, PBT margin dropped by 1.5pp to 9.9% as a result of higher administrative and distribution cost. Revenue and EBITDA grew at 18.7% to RM133.3mn and 8.4% to RM19.8mn respectively.

Impact

• No change to our earnings estimates.

Outlook

• The group will continue to move into more specialty products like Erythropoietin (EPO), which promotes the formation of red blood cells by the bone marrow. The product is expected to be launched by end-2018.

• We expect exports to be the main growth driver going forward, especially in the Philippines where the company is looking to expand further.

• Management envisages that the group will become Malaysia’s second largest pharmaceutical company by value this year. It is currently behind Merck & Co and Pfizer. In terms of volume, we note that CCMD is already the largest in Malaysia.

Valuation

• We lower our PE multiple to 20.0x (21.0x previously) upon rolling forward our valuation base year to CY19. Target price for CCMD is adjusted higher to RM3.54/share (RM3.40/share previously). YTD share price grew by 24% and 55.1% since we initiated coverage. We downgrade our call from Buy to Hold due to our required rate of return formula.

Source: TA Research - 30 May 2018