Hyphens Pharma International: Growth Supported by a Healthy Product Pipeline

Hyphens Pharma International: Growth Supported by a Healthy Product Pipeline

Overview:

Hyphens Pharma International Ltd. (HYP) is a leading specialty pharmaceutical and consumer healthcare company based in Singapore. The company has developed a strong presence in dermatology, health supplements, and proprietary brands, distributing in key markets such as Singapore, Vietnam, Malaysia, and other Southeast Asian countries. HYP has achieved significant revenue growth driven by an expanding portfolio of proprietary products and specialty pharmaceutical offerings.

• Stock Information:
  • Current Price: S$0.29
  • Target Price: S$0.40
  • Potential Upside: 37.9%
  • Market Capitalization: S$89.57 million

Key Investment Highlights:

1. Strong 1H24 Performance:
   • Record Revenue: HYP achieved a record revenue of S$99.6 million in 1H24, a 33.4% year-on-year (YoY) increase, driven by the easing of supply chain disruptions. The company also reported a 3.9% half-on-half (HoH) revenue growth, reflecting strong organic growth.
   • Net Profit: 1H24 net profit surged to S$5.9 million, ahead of forecasts, due to effective cost control measures, including reduced advertising and promotional expenses. This resulted in a net profit margin of 5.9%, which improved by 1.2% YoY and 0.6% HoH.
   • Revenue Contributors: Key contributors to revenue included Vietnam and Malaysia, accounting for 44.9% of HYP’s 1H24 revenue. The company faced challenges from currency depreciation in these markets (VND and RM), which negatively impacted margins.
2. Healthy Pipeline of New Products:
   • HYP has a robust pipeline of new products across its specialty pharmaceutical and proprietary brands segments. The company’s portfolio includes well-established products like Ceradan (topical eczema treatment), tdf (skin pigmentation cream), and CG210 (hair loss product).
   • In 1H24, HYP consolidated its medical aesthetics business, Ardence Pharma, which was previously an associate. This acquisition has contributed positively to both revenue and profits.
   • New Product Launches: HYP has launched new injectables for skin rejuvenation, including Plinest and Newest. Additionally, the company is positioning itself in the medical aesthetics market with Nabota, an alternative to botulinum toxin (Botox), broadening its dermatological portfolio.
3. Strong Cost Control Amidst Forex Pressures:
   • Gross Profit Margin: Despite impressive revenue growth, HYP’s gross profit margin compressed by 2.6% YoY, primarily due to unfavorable foreign exchange translation effects. The cost of goods sold for its specialty pharmaceuticals, priced in US$ and €, appreciated against key sales currencies like VND and RM.
   • Operating Expenses (Opex): Opex grew by 10% YoY, but the company’s tight control over advertising and promotional spending offset the impact of higher costs, helping to maintain healthy profitability.
4. Revenue Growth Potential from Specialty Pharmaceuticals:
   • Specialty Pharmaceuticals Segment: The specialty pharmaceuticals division saw revenue growth of 51.7% YoY in 1H24, driven by new product launches and existing product sales. This segment remains the largest contributor to revenue, supported by HYP’s strong relationships with pharmaceutical principals.
   • Proprietary Brands: The proprietary brands segment, which includes Ocean Health supplements and Ceradan dermatology products, also showed solid performance, with revenue increasing 20.7% YoY.
5. Balance Sheet and Cash Flow:
   • Inventory and Cash Management: HYP reported higher inventory levels, totaling S$34.6 million in 1H24, compared to S$25.5 million in FY23. The company has increased inventory to mitigate potential supply chain disruptions, which reflects a cautious but proactive approach to operational challenges.
   • Free Cash Flow (FCF): The company generated a free cash outflow of S$0.85 million in 1H24 due to higher working capital requirements. However, FCF is expected to improve in the second half of 2024 as inventory levels stabilize.

Valuation and Financial Projections:

• Target Price: The revised target price of S$0.40 is based on a discounted cash flow (DCF) model, with a weighted average cost of capital (WACC) of 13.6%. This price reflects a potential upside of nearly 38% from the current share price of S$0.29.
• Revenue Growth Forecasts: HYP’s revenue is forecast to grow by 20% in FY24, with more moderate growth of 4.4% in FY25 and 2.4% in FY26.
• EPS Growth: Earnings per share (EPS) are projected to grow by 38% in FY24, with continued growth of 6.1% in FY25 and 7.3% in FY26.

Key Risks:

1. Foreign Exchange Exposure: With a significant portion of its revenue generated in Vietnam and Malaysia, HYP is exposed to currency risk. A further depreciation of the VND or RM could impact profitability.
2. Regulatory and Product Approval Risks: The company’s product pipeline relies on successful regulatory approvals across its operating regions. Delays in product registration could slow revenue growth.
3. Margin Compression: While HYP has shown strong cost control, higher operational expenses that do not translate into improved sales could pressure margins. The company must continue to focus on maintaining profitability while growing its revenue base.

Conclusion:

Hyphens Pharma International is well-positioned for continued growth, supported by its expanding pipeline of specialty pharmaceuticals and proprietary brands. Despite short-term margin pressures from currency fluctuations, the company’s robust revenue growth, cost control measures, and strategic acquisitions place it on a solid growth trajectory. With a target price of S$0.40, reflecting a potential upside of 37.9%, HYP remains an attractive investment for those looking to gain exposure to the healthcare and pharmaceutical sectors in Southeast Asia.

The company’s strategic focus on dermatology, medical aesthetics, and consumer healthcare provides it with a competitive edge in capturing market share, particularly in high-growth markets like Vietnam and Malaysia. As supply chain disruptions ease and new products gain traction, HYP is expected to deliver sustained earnings growth, making it a compelling long-term investment.

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