Review

• Duopharma Biotech Bhd’s 1QFY19 net profit of RM14.5mn (+35.9% YoY) came in within our and consensus estimates at 27.7% and 28.4% respectively.

• YoY, PBT grew 41.7% to RM18.8mn, ahead of revenue growth of 12.9% to RM150.4mn. The robust performance was due to: i) higher demand from public and government sectors; and ii) weaker USD against Ringgit which resulted in lower cost of production as approximately 80% of its raw materials are imported. EBIT margin improved by 3.5p.p to 14.2%.

• In terms of sales mix, local sales remained the key contributor to the group, accounting for 93.6% of revenue (government and private sector contributes circa-63% and 30% of sales respectively) while the remainder of 6.4% were exports.

• QoQ, PBT improved slightly by 6.4% to RM18.8mn despite stronger growth in revenue of 30.1% to RM150.4mn. This was mainly due to change in accounting policies arising from the adoption of Malaysian Financial Reporting Standards. PBT margin normalised to 12.5% and we expect the margin to weaken further to 12.0% in FY19 due to the strengthening of USD recently.

Impact

• No changes to our earnings estimates.

Outlook

• The company’s 3-year insulin contract worth RM300mn will expire in Nov-19. Management reiterate that they are confident of the contract will be renewed given its competitive pricing and proven track record.

Valuation

• Target price is adjusted to RM1.62/share (previously RM1.61/share) based on a lower PE multiple of 19.0x CY20 EPS (from 20.0x CY19 EPS).

Source: TA Research - 23 May 2019