Review

• Duopharma’s 9M23 net profit of RM44.1mn (-16.6% YoY) came in at 63.1% and 58.6% of our full-year estimates. We consider the results within our expectation as 4Q23 will be boosted by reinvestment tax allowance of about RM10mn for its new K3 facility.

• 9M23 PBT dropped 19.1% YoY to RM56.2mn, ahead of weaker sales of 1.4% to RM537.2mn. The group was hit by: i) upward adjustment in electricity tariff, ii) higher finance cost, iii) incremental costs from the commencement of production in the new K3 facility and iv) temporary shutdown of the small volume injectable plant. All of these resulted in a lower PBT margin of 10.5% (vs. 12.8% in 9M22).

• QoQ, revenue rose 1.0% to RM169.2mn due to higher sales in the prescription pharmaceutical market, mitigating the lower demand in consumer healthcare sector. Net profit declined to RM9.0mn as compared to RM12.5mn in 2Q23 due to the higher operational costs. In terms of sales mix, local sales remained as the key contributor to the group, accounting for 92.1% of revenue while exports accounted for 7.9%.

Impact

• No change to our earnings estimates.

Outlook

• The contract period of the supply agreements for the supply of APPL products have been further extended until 31 December 2023. Thereafter, we anticipate stronger sales in FY24 driven by the new APPL contract (circa-20-25% of revenue) and recovery in consumer healthcare segment (15-20% of revenue).

Valuation

• Reiterate our Buy recommendation with an unchanged TP of RM1.47/share based on 16.0x CY24 EPS.

Source: TA Research - 9 Nov 2023