Company Highlights:
Hyphens Pharma International (HYP) has shown a strong performance in the first half of 2024, achieving record revenue of S$99.6 million, a significant 33.4% year-over-year (YoY) increase. The company’s growth was driven by its specialty pharmaceuticals and proprietary brands segments, despite some gross profit margin compression due to unfavorable forex effects. The stock is currently priced at S$0.29, with a target price of S$0.40, representing an upside potential of 37.9%.
Investment Recommendation:
Recommendation: Add
Hyphens Pharma International is recommended with an “Add” rating, backed by its solid revenue momentum, effective cost control measures, and a robust pipeline of products set to bolster future growth.
Investment Thesis:
HYP’s strong performance stems from a combination of organic growth and strategic business decisions. The company’s revenue in 1H24 surpassed expectations, achieving 56.5% of the full-year forecast, due to easing supply chain disruptions and cost management. Moreover, the integration of Ardence Pharma as a subsidiary added to both revenue and profit.
HYP’s product pipeline is promising, with new products in the dermatology and pharmaceutical sectors under registration. With a typical registration time of 12 to 24 months, this positions HYP well for sustained revenue growth in its key markets like Vietnam and Malaysia.
Despite forex-related gross margin compression, HYP has managed its operational expenses effectively, allowing it to maintain a healthy profit margin. The company has increased its FY24F-26F earnings estimates by 12.8-13.8%, reflecting the positive outlook for the next few years.
Detailed Company Analysis:
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Financial Results:
- Revenue: HYP achieved record-high revenue of S$99.6 million in 1H24, a YoY increase of 33.4%, driven by easing supply chain disruptions and strong demand for its specialty pharmaceuticals and proprietary brands.
- Net Profit: HYP’s net profit reached S$5.9 million in 1H24, a 66.7% YoY increase. The profit was ahead of expectations, representing 56.5% of the company’s FY24F forecast.
- Gross Profit Margin: The gross profit margin contracted by 2.6% due to unfavorable currency fluctuations. The depreciation of the Vietnamese dong (VND) and Malaysian ringgit (RM) against the US dollar and euro contributed to forex-related losses.
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Stock Impact:
- HYP’s stock price stands at S$0.29, with a target price of S$0.40. This provides a 37.9% upside potential for investors.
- The company’s robust revenue growth and controlled operational expenses present a positive outlook for stock performance in the near to mid-term.
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Earnings Revisions and Risks:
- The earnings estimates for FY24F-26F have been raised by 12.8-13.8% due to stronger-than-expected revenue momentum and tight expense management.
- Risks include the continued impact of forex fluctuations and potential contract termination with key pharmaceutical principals, which could impact revenue and profit margins.
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Valuation:
- HYP’s stock is trading at a forward P/E of 7.56x for FY24F, significantly below the industry average. The company’s EV/EBITDA ratio for FY24F is 4.49x, offering attractive value given its growth trajectory.
- The dividend yield is forecasted at 4.0% for FY24F, indicating a healthy return to shareholders.
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Share Price Catalysts:
- Key catalysts for HYP include the launch of new products in its dermatology and proprietary brands portfolio, as well as potential gross profit margin expansion from currency appreciation of the VND and RM against the US dollar and euro.
- Positive updates on product registrations and new market entries are also expected to drive stock performance.
Financial Targets:
- Target Price: S$0.40 (upgraded from S$0.35)
- Stop-Loss Price: Not explicitly mentioned, but investors should closely monitor for any negative developments in forex rates or loss of key partnerships.
Recommendation Date:
September 11, 2024
Broker Information:
This report was issued by CGS-CIMB Securities Singapore Pte. Ltd.
