Health and Pharmaceutical Sector in Malaysia

Title: Diversification, product plans help boost Duopharma earnings
Date: 31-Aug-2004

Extracted from The New Straits Times 28 August 2004

PHARMACEUTICAL products manufacturer Duopharma Biotech Bhd's diversification into overseas markets and product development plans have resulted in higher earnings for the company, TA Securities Holdings Bhd says.

Revenue for the second quarter ended June 30 grew 4 per cent to RM20.1 million from RM19.4 million in the preceding period (first quarter) while net profit rose 5.2 per cent to RM5.9 million from RM5.6 million.

This is mainly due to higher overseas demand resulting from the group's intensive efforts to diversify its business and reduce its dependence on government sales.

The group has been expanding its product range with more over-the-counter products, TA Securities analyst Wong Wei Sum said in her research note yesterday.

Gross profit margins, however, dipped to 47.8 per cent from 51 per cent while earnings before interest and tax (EBIT) declined to 34.8 per cent from 36 per cent.

The decline is due to higher operating and administration costs besides other expenses, she said.

Wong expects lower EBIT margins this year due to higher depreciation contributed by the new factory and marketing expenses.

She said the manufacturer's first-half revenue and net profit were within the research house's estimates, adding that the second portion of the year is expected to be the same.

The turnover and net gain of RM39.5 million and RM11.5 million over the first six months represent 48 and 50 per cent respectively of TA Securities forecast and consensus estimates.

It is learnt that the company is still in the process of finalising a government contract to supply methadone to 28 rehabilitation centres nationwide with about 28,000 patients among 300,000 addicts.

Methadone is said to be effective in maintaining abstinence from heroin.

The company has proposed an interim dividend of 6 per cent less 28 per cent income tax based on a share capital of 132 million shares at par value of 50 sen each. Wong estimated the current fiscal years net dividend per share at 6.6 sen.

Wong said Duopharma shares are trading at a price to earnings ratio of 12.2 and 11 times for fiscal 2004 and 2005 respectively.

She recommended a long-term buy call for the counter with a fair value of RM2.51, an upside of 17 per cent based on a discounted cash flow of 13 per cent discount rate and a constant growth rate of 5 per cent.

Duopharma shares ended the day unchanged at RM2.14 yesterday.

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