Duopharma Biotech to see improved export revenue ahead, says CGS CIMB Research

KUALA LUMPUR: Duopharma Biotech Bhd (DBB) is expected to record improved export revenue in the coming quarters, aided by the globally phased lifting of Covid-19 restrictions.

CGS-CIMB Research noted that the company's export revenue for the third quarter (Q3) rose 15.6 per cent year-on-year (YoY) as it secured new government tenders in Singapore and Brunei.

"We see export revenue improving further sequentially in the coming quarters, aided by the phased lifting of Covid-19 restrictions globally, as well as easing freight rates and logistical issues," the research firm said.

DBB's local private sector sales for Q3 were steady YoY, and stronger ethical classic sales offset softer consumer healthcare (CHC) sales.

The firm said the former was better than DBB's expectation due to efforts to improve and optimise its salesforce coverage, start telesales services for smaller customers and, to a lesser extent, venture into the supply of products to the veterinary sector.

DBB's CHC revenue rose marginally YoY in Q3, with higher demand for analgesics (paracetamol) and cough/cold medicines offsetting lower vitamin C sales.

"It is hopeful that Q4 CHC sales will be stable or higher quarter-on-quarter (QoQ), as advertising and promotion (A&P) campaigns have been back-loaded to Q4," it said.

For the ethical segment, DBB is looking at potentially manufacturing its erythropoietin biosimilar, Erysaa, locally to expand its biosimilar portfolio and localise its production.

CGS-CIMB Research opined that this would also lower DBB's US dollar exposure in the longer term, as biosimilars do not require the use of imported active pharmaceutical ingredients (API).

It added that DBB sees cost pressures arising from elevated API costs in the coming quarters, partly due to the strong US dollar against the ringgit.

Moreover, it noted potential incremental opex from concurrently operating both its old K1 and upcoming K3 plants, as transferring equipment/goods from K1 to K3 will take two years.

"Positively, API prices have waned over the past three months, and DBB expects them to normalise around Q2 2023.

"While 50-60 per cent of its sales costs are denominated in US dollars, its exposure is partly hedged via export sales and hedging facilities," said CGS-CIMB Research.

The firm projected DBB's Q4 2022 net profit to climb 34 per cent YoY to RM20 million but fall 15 per cent QoQ.

CGS CIMB Research reiterated an 'Add' call on the company with a target price of RM1.85.

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