Excerpts from CGS CIMB report

Hyphens Pharma International (SGX: 1J5)

• 1H22 net profit of S$6.2m (+45% yoy) beat expectations due to reopening of operating markets and higher-than-expected contribution from Novem.
• This is Novem’s first half-year contribution to HYP since it was acquired on 3 Dec 21. Novem contributed S$9.2m to 1H22 revenue.

We up our FY22-24F EPS by 27.2-36.1%. Reiterate Add with a higher DCF based TP of S$0.39 (WACC: 10.7%).

All segments reported growth; Novem’s first half -year contribution

Hyphens Pharma (HYP) 1H22 revenue of S$80.7m (+26.5% yoy/+30.0% hoh) was ahead at 55.6% of our FY22F estimate. All three segments observed yoy revenue growth, with specialty pharma principals and proprietary brands growing significantly at +44.7% yoy and +15.9% yoy to S$48.2m and S$10.8m, respectively. Specialty pharma’s growth benefited from the consolidation of contribution from Novem’s acquisition in Dec 21, as well as robust organic growth (+12.0% yoy) with the reopening of operating markets like Vietnam and Singapore. Meanwhile, proprietary brands’ growth was propelled predominantly by Ceradan and Ocean Health. Novem contributed S$9.2m to total revenue in 1H22, constituting c.80% of Novem’s FY21 revenues. Better operating leverage also led to higher net profit of S$6.2m (+44.6% yoy/+146.6% hoh), exceeding expectations at 76.8% of our FY22F estimate.

Hyphens Pharma making headway to grow proprietary brands

The launch of the group ’s Omega-3 in Vietnam and D-Vita in Malaysia laid the groundwork for growth of brands such as Ocean Health and Ceradan regionally, although brand building could take some time. More product launches are expected for the rest of FY22F in regional markets, with crossing the hurdle of product registrations an important milestone that indicates the start of sales generation in new markets.

Impact of distributorship discontinuation could be contained

HYP announced that its distributorship with principal Biosensors International Technologies Ptd Ltd (not listed) is expected to lapse by 31 Dec 22. The Biosensors portfolio has decreased in revenue contribution over time from 17% of FY17 revenue to 6% (or S$4.8m) of 1H22 revenue (Fig 2). According to management, the cardiology specialisation has been a laggard and HYP intends to exit the specialisation with this lapse. We also understand from management that no other major distributorship contracts are due for expiry in the near term.

Valuation/Recommendation

Reiterate Add with a higher DCF-based TP of S$0.39. We think HYP can sustain its revenue growth with an expanded portfolio, by tapping on levers such as introducing existing products into new markets, as well as potential product/business acquisitions. We thus lift our FY22F/23F/24F net profit forecasts by 36.1%/31.8%/27.2%. We increase our WACC to 10.7% (from 9.7%) on a higher cost of equity assumption of 12.0% (from 11.0%) previously. Rerating catalyst: earnings-accretive piece-meal acquisitions. Downside risk: higher-than-expected costs impacting margins.

You can find the full report here and the company website here