KUALA LUMPUR (May 19): The Covid-19 outbreak has caused many people to stock up on Vitamin C as they seek to boost immunity in the ongoing pandemic, and this is a big plus point for a pharmaceutical player like Duopharma Biotech Bhd, whose sales of the supplement surged after Covid-19 infections began to rise in March.

“In Malaysia, Duopharma is a market leader in Vitamin C products via the Flavettes and Champs brands. Historically, Vitamin C sales accounted for 10%-15% of Duopharma’s total sales,” RHB Research analyst Alan Lim wrote in a note today.

A change in consumer behaviour has certainly benefited Duopharma’s first quarter results, which Lim said were better than expected.

The group posted a net profit of RM13.56 million for the quarter ended March 31, 2020 (1QFY20), which slipped 6.25% from RM14.47 million as a result of higher unrealised foreign exchange losses. This was despite revenue growing 5.5% year-on-year to RM158.71 million, thanks to higher demand from the private health sector.

“We gather that the outperformance was caused by healthy sales to the private sector, as demand for Vitamin C products surged after Covid-19 infections broke out in March,” Lim said.

Despite the current harsh economic climate, RHB expects Duopharma’s prospects for FY20 to be stable, and has raised its FY20 to FY22 earnings, albeit by a single digit, by 3% to 4% on the assumption that sales will grow.

As such it has maintained its “buy” call on Duopharma and raised the target price (TP) to RM1.95 (from RM1.83 previously).

Lim added that increased budget allocations for the Health Ministry will bode well for the company as half of its revenue is generated from sales of pharmaceutical products to the government.

“We like the stock, as it should benefit from higher Vitamin C consumption, a stable 3-year forward earnings Compounded Annual Growth Rate of 6.7%, decent dividend yield of 4%, and its strong management team,” Lim said.

Meanwhile, while there was stronger demand for consumer healthcare products, CGS-CIMB Research noted the movement control order had negatively impacted demand for drugs in hospitals. This is a result of lower patient volume, it said, as the majority of patients have deferred obtaining non-essential/emergency treatment, particularly in private healthcare facilities.

In a note today, CGS-CIMB Research analyst Walter Aw said he is now expecting the group to record sequentially weaker results ahead, on the back of slower drug demand and higher raw material costs.

CGS-CIMB reiterates its FY20 earnings forecast of a net profit of RM63.96 million. However, it is downgrading the stock to a "hold" with an unchanged target price of RM1.70.

Aw said Duopharma’s margins are expected to be negatively affected in the short term by higher raw material costs. This is taking into account the recent weakening of the ringgit against the US dollar and that half of the group's raw material purchases are made in the US dollar.

“In our view, Duopharma will face difficulty in raising its products’ selling prices, particularly for government orders (49% of FY19 revenue), as selling prices are typically locked in for 1-2 years,” Aw said.