RHB downgrades Duopharma to 'sell' following overdose of vaccine hope

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KUALA LUMPUR (July 29): RHB Investment Bank Research has downgraded its rating of Duopharma Biotech Bhd to “sell” at RM2.82, with an unchanged discounted cash flow (DCF)-derived target price (TP) of RM1.95 and 31% downside.

In a note today, RHB analyst Alan Lim said the downgrade followed a media report which stated that packaging of the prospective Covid-19 vaccine will not be exclusive to Duopharma and Pharmaniaga Bhd.

“We maintain our earnings estimates as we have not imputed any earnings contribution from the potential vaccine.

“Although the company is fundamentally strong, a valuation of +3.98SD (standard deviation) means its share price has run up purely on speculation. We expect no positive surprises for the second quarter ended on June 30, 2020 (2QFY20) and FY20F earnings,” he added.

Lim said the New Straits Times, quoting Science, Technology and Innovation Minister Khairy Jamaluddin, had reported that the selection of companies to package the Covid-19 vaccine (once it has been developed) will not be limited to Duopharma and Pharmaniaga.

He said this followed an initial report by theedgemarkets.com on July 14 that Duopharma and Pharmaniaga were selected to undertake the fill-and-finish processes of the Covid-19 vaccine.

Lim noted that Duopharma's share price had surged 76% in the past one month with no change in the company’s fundamentals.

“At RM2.82, Duopharma is trading at 30.5 times FY21F price-earnings ratio (PER). Although it is fundamentally strong, we believe that the huge premium is not justified in the absence of an immediate catalyst which would improve earnings significantly for the near term.

“We expect Duopharma to announce its 2QFY20 results in August. Earnings should match expectations with no major positive surprises."

Lim expects Vitamin C sales to be strong in 2QFY20.

However, he said sales of pharmaceutical products to private hospitals were likely to be weak due to a low occupancy rate.

With no surprises seen for 2QFY20, Lim said FY20F earnings growth is also limited at 6%.

At 9.42am, Duopharma had shed four sen or 1.42% to RM2.79, with a market capitalisation of RM1.93 billion. The stock saw some 4.7 million shares traded.