Hyphens Pharma International (HYP) has a “healthy pipeline” of products to support patmi growth ahead, says CGS International (CGSI) analyst Tay Wee Kuang.
“HYP’s positive revenue momentum was a confluence of organic growth from new products and stock-keeping units launched across its specialty pharmaceuticals and proprietary brands portfolio over time,” writes Tay in a Sept 11 note.
The CGSI analyst calls attention to HYP’s pipeline of products undergoing registration across its operating regions, which already enjoy “sizeable” sales in existing markets. “We see greater potential for HYP to grow its revenue after the products are launched. Management has shared that product registration typically takes 12 to 24 months, depending on the country and type of product.”
Hence, Tay is staying “add” on HYP with a higher target price of 40 cents from 35 cents previously. “We believe HYP will be able to grow its patmi alongside sustained revenue growth. As such, we raise our FY2024-2026 earnings per share by 12.8% to 13.8%, with revenue growth partially offset by margin compression.”
Record 1HFY2024
On Aug 14, HYP reported record first-half revenue of $99.6 million for 1HFY2024 ended June 30, up 33.4% y-o-y and 3.9% h-o-h, with the easing of supply chain disruptions from 1HFY2023.
1HFY2024 net profit was ahead at 56.5% of CGSI’s FY2024 forecast due to better cost control from lower advertising and promotional expenses, which offset gross profit margin compression of 2.6 percentage points (ppts) y-o-y and 0.4 ppts h-o-h.
As a result, HYP’s 1HFY2024 net profit margin of 5.9% improved 1.2 ppts y-o-y and 0.6 ppts h-o-h.
Gross profit compression was a result of key currencies of products from its pharmaceutical principals — the US dollar and euro — appreciating against key currencies of markets that HYP is selling to — the Vietnamese dong and Malaysian ringgit.
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Vietnam and Malaysia combined contributed 44.9% of its revenue for 1HFY2024. The depreciation of the two currencies has also led to continued currency translation losses since 1HFY2022, notes Tay. “We think that the consolidation of its medical aesthetics business, Ardence Pharma, as a subsidiary in 1HFY2024 from an associate previously also contributed positively to revenue and patmi.”
Tay notes that HYP had free cash outflow of $0.85 million as at 1HFY2024, predominantly due to higher inventory levels of $34.6 million, up from $25.5 million in FY2023, to mitigate potential supply chain disruptions. HYP also had higher trade receivables of $46.8 million, up from $41.1 million in FY2023.
Re-rating catalysts include gross profit margin expansion from the appreciation of Vietnamese dong and Malaysian ringgit against the US dollar and euro, as well as potential price increases.
As at 3.06pm, shares in Hyphens Pharma are trading flat at 29 cents.
