Overview of Duopharma Biotech
Duopharma Biotech is Malaysia’s leading pharmaceutical producer with a strong foothold in a fast growing export segment. The company, currently trading at RM1.28, has maintained its BUY rating with a target price of RM1.39, indicating an 8.6% potential upside. Notable for its defensive earnings, robust government sales and attractive valuations, Duopharma continues to be a key player in the healthcare sector.
Key Company Data and Shareholder Profile
- Bloomberg Ticker: DBB MK
- Shares Issued: 961.9 million
- Market Cap: RM1,125.5 million (US\$253.8 million)
- 3-Month Average Daily Turnover: US\$0.2 million
- Major Shareholders:
- PNB – 51.5%
- EPF – 6.9%
- Billion Victory – 2.5%
- FY24 NAV per Share: RM0.76
- FY24 Net Debt per Share: RM0.17
Q4 2024 Results: A Decent End to the Year
Duopharma’s Q4 2024 results demonstrated a healthy recovery in key areas despite a challenging mix. Highlights include:
- Revenue: RM193.7 million, showing a robust year-on-year (yoy) growth of 15.6%. The resurgence in public sector sales played a pivotal role in offsetting weaker consumer healthcare performance.
- Gross Profit: RM75.5 million, with an improvement reflected by a 5.9 percentage point increase in gross margin to 39.0%.
- EBIT: RM21.8 million, representing a strong yoy increase of 98.2% and a sequential dip of 16.1%.
- Pretax Profit: RM17.4 million, up 148.0% on a yoy basis and with a slight sequential decline.
- Core Net Profit (PATAMI): RM15.1 million, which grew 60.8% yoy, contributing to a full-year core profit of RM62.3 million (up 3.8% compared to the previous year).
The report notes that Duopharma’s sales momentum, particularly from government sales, and initial signs of improved margins outweigh the challenges posed by the near-expiry of its insulin contract. As a result, the analysts reaffirm a BUY recommendation with a target price of RM1.39.
Financial Performance and Forecast Outlook
Historical and Forward-Looking Financials
The report provides detailed financial projections covering revenue, operating metrics, and profitability margins from FY2024 through FY2027:
- Revenue Growth: From RM705 million in 2023 to an estimated RM1,072 million by 2027, with strong growth driven by government contracts and increased export sales.
- EPS and Profit Margins: EPS is projected to grow from 6.3 sen in 2023 to 10.7 sen by 2027, supported by steady operating profit improvements and margin stabilization.
- Valuation Metrics: The current valuation trades near -1SD relative to its five-year mean, with a 2025 future PE estimated at 13.8x. The historical PE peg of 14.7x reflects a cautious yet attractive investment valuation.
Detailed Profit & Loss, Balance Sheet and Cash Flow
The analysis covers comprehensive details from the profit & loss statement, balance sheet and cash flow projections:
- Profit & Loss: In FY2024, the net turnover was RM814 million with an EBITDA of RM146 million. The operating profit and net profit further reflect solid improvement in core business performance with predicted growth to RM103 million by 2027 on an adjusted basis.
- Balance Sheet: Total assets are projected to grow from RM1,377 million in 2024 to RM1,477 million by 2027 with maintained stability in fixed assets and a strengthening shareholders’ equity base, highlighting efficiency in capital management.
- Cash Flow: Operating cash flows reflect a positive trend, supported by improved pretax profits and sound working capital management, ensuring that the company remains well-capitalized through the forecast period.
Key Growth Drivers and Government Contracts
A major catalyst for Duopharma’s growth is its strong government contract performance. The report highlights:
- The resurgent growth in public sector sales, which has been instrumental in driving Q4 revenue and will continue to underpin earnings growth in 2025 and beyond.
- Government approved product purchase list (APPL) contracts, totaling RM665 million or RM222 million per annum until December 2026. This is a significant uplift from RM160 million in 2023, supporting a considerable near-term earnings boost.
- A cautionary note on the near-expiry of the RM125 million non-APPL insulin contract in April 2025. Despite anticipated increased competition, Duopharma’s strong track record suggests it will likely retain the majority of its contracted volume.
Margin Improvements and Cost Dynamics
Duopharma has demonstrated initial signs of improved margins, supported by lower input costs:
- Gross Margin: Improved by 5.9 percentage points year-on-year, driven by better cost management – notably lower API costs.
- EBITDA and PAT Margins: The stabilization of operating margins coupled with an effective tax rate adjustment, despite a marginal increase compared to 2023, indicates a sustainable recovery in profitability.
Valuation, Risks and Investment Recommendation
The report emphasizes that Duopharma currently trades at a bargain valuation close to -1SD from its five-year rolling mean. Key aspects include:
- Valuation Metrics: Presently trading with a PE range that is attractive relative to its historical performance, supporting the forward-looking estimates.
- Risks: The primary risks include the single customer concentration – with 50% of sales derived from government contracts – and potential headwinds from a strengthening US dollar which could impact the forex assumptions built into new contracts.
- Investment Recommendation: In view of its defensive earnings, attractive valuation and growth prospects bolstered by government contracts, UOB Kay Hian maintains its BUY recommendation with a target price of RM1.39.
Environmental, Social and Governance (ESG) Initiatives
Duopharma is aligning its strategic initiatives with robust ESG practices:
- Environmental: The company aims to replace 50% of single-use plastics with biodegradable alternatives by 2026, pursue carbon neutrality by 2030, and achieve net zero carbon emissions by 2050.
- Social: Commitment towards diversity and inclusion is evident with women representing 47.6% of the total workforce as of the end of 2022.
- Governance: Board transparency and independence are maintained with 60% of board members classified as independent directors.
Detailed Financial Projections (2025-2027)
The detailed assumptions include:
- Revenue Mix:
- Local government: Approximately 50-51% of total revenue
- Local private: Roughly 45% consistently over the period
- Export: A modest yet growing share, rising from 4% in 2025 to 5-7% in subsequent years
- Profit After Tax (PAT): Expected to grow from RM90.7 million in 2025 to RM102.7 million by 2027, driven by improved margins and lower input costs.
- Three-Year CAGR: Percentage growth rates substantiate the recovery and expansion trajectory, with PAT margins stabilizing in the high 9% range.
Comprehensive P&L, Balance Sheet and Cash Flow Overview
The report delivers an in-depth look into the company’s financial health, covering:
- Profit & Loss: Revenues are forecast to steadily escalate (RM814 million in 2024 to RM1,072 million in 2027) alongside improving EBITDA and operating profit.
- Balance Sheet: A steady asset base with fixed assets remaining stable and shareholders’ equity growing from RM709 million in 2024 to RM854 million by 2027.
- Cash Flow: Operating cash flows show a positive trend that reinforces Duopharma’s capacity to manage working capital and invest in capex as needed over the forecast period.
Conclusion
Duopharma Biotech continues to demonstrate its strength in the pharmaceutical arena with resilient Q4 2024 performance, promising financial forecasts, and aggressive cost management. The strategic emphasis on government contracts and ESG initiatives further supports its robust outlook. With the company trading at a compelling valuation, UOB Kay Hian remains confident in its outlook by maintaining the BUY rating and setting a target price of RM1.39.
