Duopharma Biotech to to ride on solid demand for healthcare, supplement products

KUALA LUMPUR: Duopharma Biotech Bhd is poised to record growth anchored by resilient consumer demand for healthcare and supplement products.

RHB Research noted that the company's growth would also be boosted by a RM375 million human insulin procurement contract from the Ministry of Health (MOH) that will last until 2025.

After attending Duopharma's post-results briefing, analyst Alexander Chia noted that the company's consumer healthcare (CHC) sales in July and August were flattish year-on-year, albeit better than its estimate, due to a high base effect as demand for immunity-boosting products was quite robust in 2021.

However, following the relaxation of the mandate on wearing face masks outdoors in April, it also noted a sudden spike in the number of cough and cold cases, which the market did not expect.

"Duopharma expects the impairment on Sinopharm vaccines will continue until the end of 2022, even though the remaining inventory is expected to be sold off by 2023.

"The impairment amounted to RM18 million in the first half of 2022 (1H22), as it only took effect on Jan 15. We are expecting a further RM7-8 million impairment in 2H22," he said.

The firm stated that Duopharma's approved product purchase list (APPL) is due for renewal by December.

However, the company has not seen any material development regarding talks with the government.

"We believe that foreign exchange rate fluctuations and the surge in product average selling prices (ASP) are part of the MoH's key concerns since the current procurement price is still based on 2017 rates.

"Historically, the APPL had a contract period of three years and, currently, we expect this to account for 18 per cent of revenue over 2022-2024," it said.

The bank-backed research firm added that the ringgit's depreciation against the US dollar remained a key concern for the company, even though freight costs have normalised to pre-pandemic levels, coupled with the stabilisation of raw material prices.

However, the research firm said the overall impact should be mitigated by progressive increases in the ASP of six to eight per cent, primarily among its CHC and private sector divisions.

"Every one per cent appreciation in the US dollar may affect Duopharma's earnings by 0.3 per cent (impact at cost level)," it added.

RHB maintained a 'Buy' on the company with a target price of RM1.64.

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