Review

• Duopharma’s 1H23 net profit of RM35.2mn (-3.9% YoY) came in below ours and consensus’ full-year estimates at 40.8% and 35.5% respectively. The variance was due to weaker-than-expected sales and higher-than-expected operational costs.

• 2Q23 net profit declined 44.6% to RM12.5mn, mainly due to weaker demand in all main sectors as revenue dropped 16.4% to RM167.5mn. In addition, the group was hit by: i) higher electricity tariff, ii) higher finance costs, iii) temporary shutdown of the small volume injectable plant and iv) incremental costs from the commencement of production at the new K3 facility. As such, 2Q23 PBT margin dipped to 9.9% as compared to 14.1% in 1Q23.

• 1H23 revenue stood at RM368.0mn as compared to RM367.7mn in 1H22. The growth was tempered by the weaker demand from the consumer healthcare segment as consumers consume lesser Vitamin C. In terms of sales mix, local sales remained as the key contributor to the group, accounting for 94.8% of revenue while exports accounted for 5.2%.

• For this quarter, the group declared a first interim dividend of 0.5sen per share (vs. 0.5sen in 1HFY22).

Impact

• We cut our FY23 earnings estimates by 18.8% upon lowering sales assumption by 6% and higher operating costs.

Outlook

• Moving into 2H23, we expect operating environment to remain challenging due to the weak demand from the consumer healthcare sector. Positively, government sales are expected to remain resilient.

Valuation

• We maintain our Buy recommendation with a lower TP of RM1.47/share (previously RM1.65/share) based on a lower PE multiple of 16x (previously 18x). This is to reflect the weaker-than-expected consumer healthcare segment.

Source: TA Research - 25 Aug 2023