CGS-CIMB is initiating coverage on Hyphens Pharma with an ‘add’ call and target price of 36 cents.
This is expected to give the counter a 22% upside from its current 29.5 cent price, analyst Tay Wee Kuang writes in a Jan 6 report.
“We like Hyphens Pharma for its resilient business model and growing product portfolio as well as sales and distribution channels that will drive future earnings growth,” he notes.
Tay notes that the target price represents 13.5x FY2022 F/E and is 1 standard deviation point above the company’s historical mean since its listing in 2018.
Presently, the pharmaceutical distributor is trading at 11.1x FY2022 P/E and close to 1 standard deviation points below its historical mean.
“We believe that Hyphens Pharma’s share price has yet to reflect the value of its business acquisition of Novem, the first since its listing,” adds Tay.
Hyphens Pharma had proposed the acquisition of Novem – a Singapore-based pharmaceutical distribution business – on Nov 9 2021.
Valued at around $16.3 million, the acquisition is priced at 3.6x P/B, relative to that of Hyphens Pharma’s P/B of 1.8x. The acquisition is also seen to offer quality earnings with historically superior margins of around 18%, compared to Hyphens Pharma’s historical average of around 5%, flags Tay.
The analyst believes that the acquisition could reap Hyphens Pharma further synergies through cross-selling opportunities given the different sales channel exposure between the two companies.
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It will also bring Novem’s portfolio to markets such as Vietnam, Malaysia and Indonesia, where Hyphens Pharma has a presence in.
Meanwhile, Tay reckons that Hyphens Pharma could benefit from the long runway for growth that the pharmaceutical allows.
For instance, it can reap inorganic growth opportunities such as: business acquisitions, brand acquisitions and partnerships with brand principals, he explains.
The company has demonstrated a penchant for growth via strategic acquisitions of brands like Ocean Health (health supplements) and TDF (dermatology) in 2016, and CG 210 (scalp care) in 2020.
The acquisition of Novem will see Hyphens Pharma adding over 40 brand principals and 150 products to its portfolio.
Following the acquisition, Hyphens Pharma has been maintaining a strong net cash position of $22 million as of 9M2021 (Sep 30), which allows it to “remain nimble in the face of future expansion opportunities,” says Tay.
As at 3.05pm, shares in Hyphens Pharma were up 1.5 cents or 5.09% at 31 cents.
Cover image of Lim See Wah, CEO of Hyphens Pharma: Albert Chua/The Edge Singapore
