Excerpts from CGSCIMB report

Hyphens Pharma (SGX: 1J5)

• Hyphens Pharma (HYP) announced the acquisition of the remaining 58% stake in associate Ardence across three tranches, to be fully completed earliest by FY26F.
• The first tranche will see HYP’s stake increase by 23% for a consideration of S$1.9m, fully funded by cash out of HYP’s net cash of S$28.6m as of 1H23.
• We view the deal favourably as we see Ardence as a strategic asset to grow HYP’s medical aesthetics business.

Reiterate Add; unchanged TP of S$0.34.

Financial impact from the acquisition of Ardence Pharma

Hyphens Pharma International’s (HYP) existing 42% stake in Ardence Pharma was a result of HYP’s acquisition of Novem in end-FY21. In FY22, Ardence generated sales of S$2.8m. The acquisition of the remaining 58% stake in Ardence is to take place across three tranches, with the last tranche expected to complete by FY27F. The first tranche of the transaction, which will see HYP’s stake in Ardence increase from 42% to 65% for a consideration of c.S$1.9m, values Ardence at S$8.1m, or an implied FY22F P/E of c.9.9x, and is expected to complete by end-FY23F. According to management, it would be fully funded by cash out of HYP’s net cash of S$28.6m (as of 1H23). We think that valuations are attractive, given Ardence’s superior net profit margin of 29.4% to HYP’s 7.0% in FY22, as well as stronger growth potential. Ardence’s revenue and net profit double yoy from FY21 to FY22, according to management during the analyst briefing held on 20 Oct 23.

A strategic asset to grow HYP’s medical aesthetics business

Ardence was started in 2018 as a boutique pharmaceutical company. Today, Ardence serves more than 250 medical aesthetics clinics in Malaysia and is the exclusive distributor of anti-aging injectables PLINEST and NEWEST in Southeast Asia, and also has a skin brightening oral tablet, Oxithion. Although the incremental net profit contribution from the additional 23% stake in Ardence is likely negligible in the near term, we view the deal favourably due to the cross-selling opportunities.

Valuation/Recommendation

Reiterate Add, with an unchanged DCF-based TP of S$0.34 We maintain our Add rating with an unchanged DCF-based TP of S$0.34 (WACC: 14.4%). We see incremental improvement in HYP’s business prospects from the acquisition, especially with the successful launch of PLINEST from Ardence in Singapore in Oct. HYP’s strong net cash position of S$28.6m as of 1H23 also puts it in good position to further strengthen its portfolio across various business segments. Hyphens Pharma share price chart You can find the full report here and the company website here.