Hyphen Pharma International - CGS-CIMB Research 2022-11-24: Steadfast In Executing Its Business Strategy

Hyphen Pharma International - Steadfast In Executing Its Business Strategy

  • Hyphens Pharma International (SGX:1J5)'s 3Q22 revenue of S$42.8m (+2.9% q-o-q; +46.7% y-o-y) was propelled by growth across all business segments. Strong y-o-y growth in specialty pharma principals (+77.1%) and proprietary brands (+51.4%), in addition to growth in the medical hypermart and digital segment (+2.6% y-o-y) supported a 3.7% points gross profit margin expansion y-o-y. 9M22 revenue was in line at 78.1% of our FY22 forecast but net profit of S$10.3m exceeded our expectation at 93.0% of our full-year estimate.
  • Newly-acquired Novem contributed S$3.8m/S$13.0m sales to Hyphens Pharma in 3Q22/9M22, surpassing its pre-acquisition revenue of S$11.4m in FY20.
  • We believe that cyclical restocking by customers in Vietnam, ahead of product licence renewals that typically occur every two years, contributed to the strong 3Q earnings. The last round of licence renewals was in FY20.
  • See Hyphens Pharma's announcement dated 09 Nov 2022 – Management comments in its 3Q22 business updates identified potential headwinds from inflationary pressures, supply chain disruptions and a potential economic slowdown that could disrupt supply-demand dynamics and lead to higher costs.
  • We also expect a step-up in operating costs from incubating DocMed, which houses Hyphens Pharma’s digital assets including its e-pharmacy and business-to-business (B2B) platform for 2 years with the S$6m raised from a 10% stake sale in DocMed in Jun 2022.
  • As at end-1H22, Hyphens Pharma’s cash balance has recovered back to S$28.4m from end-FY21’s S$19.5m post-acquisition of Novem with a low debt level of ~S$5.3m. The healthy cash balance suggests that Hyphens Pharma could go into FY23F with an eye out for investments, which can include acquisition of brands, businesses, as well as potential in-licensing from brand principals. Nevertheless, we do not expect an immediate earnings impact due to regulatory approvals required before sales, and slow adoption from the medical community.
  • We raise our FY22F/23F/24F EPS forecast for Hyphens Pharma by 18.4%/0.3%/12.2% as we expect a stronger FY22F, and normalisation of profitability from FY23F onwards. This should pave the way for higher dividends – we project 1.27 cents for FY22F based on its 30% payout policy, suggesting a yield of ~4% – while allowing Hyphens Pharma to pursue potential growth opportunities.
  • Reiterate ADD rating on Hyphens Pharma with a higher DCF-based target price of S$0.40.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

TAY Wee Kuang CGS-CIMB Research | Izabella TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-11-24
SGX Stock Analyst Report ADD MAINTAIN ADD 0.40 UP 0.390

Previous report by CGS-CIMB:
2022-08-17 Hyphen Pharma International - Positioning For Next Phase Of Growth

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