Comprehensive Analysis of Hyphens Pharma International and Market Peers

Broker: CGS International

Date: November 13, 2024

Hyphens Pharma International: Slowing Revenue Momentum

Hyphens Pharma International (HYP) reported a net profit of S\$7.5 million for the first nine months of 2024, which fell short of the full-year forecast due to higher operational expenses in the third quarter. The company’s revenue growth slowed down in the third quarter, with a year-on-year increase of 2.5% but a quarter-on-quarter decline of 15.0%. This came after a recovery in the fourth quarter of the previous year when supply chain disruptions eased.

Vietnam: A Key Factor in Revenue Slowdown

Although HYP did not provide a segmental breakdown in its third-quarter trading update, the company attributes the slower revenue momentum to subdued sales in Vietnam. The gross profit margins expanded by 3.3% year-on-year and 5.1% quarter-on-quarter in the third quarter, reflecting lower revenue from Vietnam, which typically commands lower margins due to pricing pressures in the hospital sales channel.

Impact of Higher Operational Expenses

HYP’s operational expenses increased due to improved sales, rising manpower costs, and administrative expenses. The company expanded its sales force in key regions such as Vietnam, Singapore, and Malaysia, which contributed to the higher costs.

Investment Recommendations

Despite the challenges, CGS International reiterates an “Add” rating for HYP with a reduced target price of S\$0.35, down from S\$0.40. The recommendation is based on potential higher contributions from new products, including medical aesthetics products under subsidiary Ardence and new product lines from proprietary brands such as Ceradan and Ocean Health.

Financial Summary and Key Changes

• Reduced FY24F EPS by 14.8%
• Reduced FY25F EPS by 10.6%
• Reduced FY26F EPS by 10.1%

Hyphens Pharma International Financial Overview

HYP’s financial performance shows a mixed picture. While revenue for the first nine months of 2024 was 22.1% higher year-on-year, the gross profit margin decreased slightly by 0.7% points. The net profit margin improved by 0.4% points year-on-year, but the third-quarter results fell short of expectations.

Forecast Changes

CGS International has adjusted its forecasts for HYP, reducing revenue and gross profit estimates for FY24F, FY25F, and FY26F by 3.5% and 3.6% respectively. The EBIT and reported PATMI forecasts have also been reduced significantly.

Peers Comparison

CGS International provides a comparative analysis of Hyphens Pharma International with Mega Lifesciences and Duopharma Biotech Bhd.

Mega Lifesciences

Mega Lifesciences (MEGA TB) is given a “Hold” recommendation with a target price of 40.50 THB. With a market cap of US\$939 million, the company is expected to see a slight EPS CAGR of 1.3% over the next three years. The forward P/E ratios for FY24F and FY25F are 15.3x and 14.7x respectively, indicating a relatively stable valuation.

Duopharma Biotech Bhd

Duopharma Biotech Bhd (DBB MK) receives an “Add” recommendation with a target price of 1.55 MYR. The company, with a market cap of US\$267 million, does not have an available EPS CAGR. The forward P/E ratios for FY24F and FY25F are 18.7x and 13.4x respectively. The company is expected to have recurring ROE percentages of 8.7% and 11.7% for the respective years.

ESG Efforts of Hyphens Pharma International

HYP has been actively working on its Environmental, Social, and Governance (ESG) pillars. The company sources sustainable products, engages in social initiatives, and adheres to strict corporate governance policies. Notably, HYP has not faced any controversies since its listing in 2018, which reflects positively on its brand equity and operational standards.

Environmental Initiatives

In FY21, HYP launched a refill pack for its Ocean Health Omega-3 Fish Oil product, which uses 90% less plastic compared to the traditional bottle. This initiative is part of HYP’s efforts to promote sustainability and reduce environmental impact.

Governance and Social Responsibility

HYP maintains a zero-tolerance policy towards corruption and has robust policies governing workplace ethics and business conduct. The company has not reported any breaches in corporate governance, corruption, or bribery, which underscores its commitment to strong governance practices.

Key Financial Metrics and Forecasts

CGS International provides detailed financial forecasts and key metrics for HYP, including revenue growth, EBITDA margins, and net profit margins. The company’s key financial drivers include specialty pharma principals, proprietary brands, and medical hypermart and digital segments.

Balance Sheet Highlights

• Total Cash and Equivalents: S\$36.48 million (Dec-22A) to S\$34.92 million (Dec-26F)
• Total Debtors: S\$31.11 million (Dec-22A) to S\$46.29 million (Dec-26F)
• Inventories: S\$21.26 million (Dec-22A) to S\$36.20 million (Dec-26F)

Key Ratios and Performance Indicators

• Revenue Growth: 28.9% (Dec-22A) to 2.4% (Dec-26F)
• Operating EBITDA Margin: 8.63% (Dec-22A) to 7.15% (Dec-26F)
• ROIC: 32.0% (Dec-22A) to 20.7% (Dec-26F)

Conclusion

Hyphens Pharma International faces challenges with slowing revenue momentum and higher operational expenses. However, the company’s strategic initiatives, including expanding its product portfolio and maintaining strong ESG practices, provide potential for future growth. Investors are advised to consider these factors when evaluating investment opportunities in HYP and its market peers.