Analysts positive on Hyphens Pharma with Novem acquisition to boost growth
https://www.theedgesingapore.com/ca...hyphens-pharma-novem-acquisition-boost-growth
Analysts are positive on Hyphens Pharma in light of a good set of FY2021 ended December 2021 results, its latest Novem acquisition, as well as the group obtaining Singapore’s first HSA-registered e-pharmacy license.
KGI Group Research analyst Megan Choo has kept an “outperform” rating but with a lowered target price of 38 cents from 48 cents previously.
Hyphens Pharmas’ results were strong for FY2021, where revenue was up 4.1% y-o-y to $125.9 million, while gross profit rose 10.2% y-o-y to $48.1 million. This was mainly due to the improvement of gross profit margin to 38.2% in FY2021, compared to 36.1% in the previous period. Net profit after tax rose 11.1% y-o-y to $6.8 million, translating to a net profit margin of 5.4%.
Moreover, basic and diluted earnings per share (EPS) increased from 2.05 cents in FY2020 to 2.27 cents in FY2021.
Earlier in December 2021, Hyphens Pharma acquired Novem, a Singapore-based leading healthcare-focused distributor of pharmaceutical products, nutraceutical products and medical services, for a consideration of $16.3 million. Thus far, the acquisition has already added close to $1 million revenue within a month of operations in December 2021.
Novem has more than 40 brand principals mainly across Europe and Asia and serves more than 1000 active customers including hospitals, polyclinics, specialists and general practitioners.
Considering how Novem has over 150 products in its portfolio, including proprietary brands of generics and in-house developed nutraceutical products, the acquisition of Novem is expected to bring further earnings accretion to Hyphens Pharmas’ FY2022 results and beyond, according to Choo.
Moreover, the group in January launched its e-pharmacy business WellAway. This new venture seems to be opening up opportunities for the group. Most recently, the group’s subsidiary Docmed announced a partnership with SATA CommHealth to deliver a new primary healthcare system for migrant workers from April onwards. Under this partnership, WellAway will be providing its e-pharmacy services and medication delivery to the migrant worker patients following teleconsultation done by SATA CommHealth.
The way Choo sees it, Docmed’s collaboration with WellAway eliminates the need to manage a large inventory of medications and e-prescriptions are conveniently delivered to the masses.
Additionally, Pharmaceutical group Servier Singapore, is working closely with WellAway to explore possibilities of healthcare digitalisation. “With this golden ticket of being Singapore’s first HSA-registered e-pharmacy, more collaboration and deals are expected to occur moving forward,” says Choo.
On the other hand, SAC Capital analyst Lam Wang Kwan is also upbeat on the stock as he has kept a “buy” rating on Hyphens Pharma with an unchanged target price of 40 cents.
Lam is impressed with the group’s FY2021 results, as its revenue saw growth thanks to better sales and the contribution from the group’s latest acquisition of Novem. Moving forward, the analyst expects that Novem will contribute about $13 million in sales and approximately $1.5 million to the bottom line for FY2022. “The amortisation of goodwill is expected to kick in from FY2023 onwards, offsetting the gain by approximately $1.2 million annually over the next 10 years,” the analyst writes.
Lam forecasts an 18.3% and 8.0% topline growth in FY2022 and FY2023. This translates to a 24.4% bottom line growth in FY2022 in the absence of costs associated with acquisition of Novem before growth moderating to 1.8% in FY2023 due to amortisation of goodwill.
Novem is entrenched in the public sector with 60% of sales going to government hospitals and polyclinics. Lam also points out that the return of elective surgeries as restrictions eased could further lift business sales.
Moreover, Hyphens Pharma’s Vietnam operation is also expected to improve as the country returns to normalcy, though the gross margin is likely to dip as a result. For Indonesia, it saw approximately $1 million revenue growth last year despite facing product shortage. E-commerce efforts only began in 2HFY2021 in Indonesia as well, as the group noted that there is still room for growth in the market.
“We believe the Indonesian market could provide the group with significant room for growth going forward,” says the analyst.
As for Novem, the analyst is upbeat on its future prospects following it obtaining its e-pharmacy license. “One distinct advantage for Hyphens in the e-pharmacy business is that they do not require additional working capital to build up inventory as they can tap into the existing inventory in pan-Malayan,” says Lam.
While Lam feels that the partnership with WellAway is not going contribute significantly to the group immediately, the first mover advantage could see Hyphens Pharma gaining an edge over its potential competitors when telemedicine takes off.
As at 11.34am, shares in Hyphens Pharma are trading at 1 cent up or 3.45% higher at 30 cents at a FY2022 P/B ratio of 1.4x and dividend yield of 2.9%, according to SAC Capital’s estimates.