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Analysts positive on Hyphens Pharma as 1Q results beat expectations

·3-min read

CGS-CIMB gives a target price of 36 cents, while SAC Capital hands Hyphens a 40 cents target price.

Analysts from CGS-CIMB and SAC Capital have maintained their “buy” call and target prices on the stock after the company released its 1QFY2022 results ended March.

CGS-CIMB gives a target price of 36 cents, while SAC Capital hands Hyphens a 40 cents target price.

CGS CIMB analysts Tay Wee Kuang and Izabella Tan note that Hyphens experienced “robust growth” across all business segments, recording a 1QFY2022 revenue of $39.2 million.

This was 24.9% higher q-o-q and 18.5% y-o-y, and was in line with the brokerage’s expectations at 27% for FY2022.

They point out that the newly acquired portfolio from Novem contributed $3.5 million in revenue for the quarter, without which Hyphens would still have observed robust 8% revenue growth.

All three segments reported revenue growth, but the higher margin segments, like speciality pharma principals (up 24.4% y-o-y) and proprietary brands (up 12.8% y-o-y), outpaced the medical hypermart and digital segments (up 10.8% y-o-y).

This improved sales mix also led to a 1.7% percentage point improvement in both gross profit and net margins y-o-y. Consequently, 1QFY2022 net profit of $3.2 million represents 49.7% growth compared to the same period a year ago.

1QFY2022 also was the first quarter for Hyphens that saw a full contribution from Novem’s portfolio since its acquisition in Dec 2021.

Tay and Tan believe that the higher-than-expected revenue contribution from Novem compared to its flattish $10m-11m sales per annum. over FY2019-2021 was due to the return of patients.

This was as the public healthcare sector in Singapore shifted its focus back to the backlog of deferred treatments for non-Covid-19 patients over the past two years.

“From our previous communication with management, the public healthcare sector typically contributed about 60-70% of Novem’s sales.” the analysts say

Despite these promising signs, Tay and Tan think that net margins could normalise in coming quarters, even though Novem’s business commands a net margin of about 15-20% compared to Hyphens 5-6%.

Cost pressures such as rising freight costs and higher operating expenses could thin margins moving forward, and Hyphens has also disclosed that the purchase price allocation (PPA) for Novem’s acquisition, which will result in higher amortisation expenses related to intangible assets involved in the transaction, has not been completed.

“We believe the market has not recognised the impact of Novem’s acquisition on its earnings profile, which could also translate to future cross-selling opportunities with Hyphens’ existing sales channels” Tay and Tan say. 
Separately, SAC Capital analyst Peggy Mak also broadly agrees with the points made by the CGS-CIMB analysts, but also highlights the point that she expects an easing in gross margins in the next three quarters due to supply chain bottlenecks, as well as higher procurement costs.

Mak writes that the lead time for procurement has lengthened, and some products are out of stock as suppliers face difficulties in securing raw materials. As such, this will raise working capital requirements

This is coupled with higher procurement costs as suppliers pass on higher raw material prices, with Mak adding that higher selling prices might dampen consumers’ demand, especially for discretionary products,

“We maintain our FY2022 revenue and net profit forecast, but there is upside risk to our projections if the supply situation in Europe improves.”

Shares of Hyphens Pharma closed flat at 28 cents on May 19, with a FY2022 P/E ratio of 10 and dividend yield of 2.9%, according to SAC Capital.

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