Hyphens Pharma - RHB Invest 2019-11-20: Banking On Ceradan Products; Keep BUY

HYPHENS PHARMA INTL LIMITED (SGX:1J5)

Hyphens Pharma - Banking On Ceradan Products; Keep BUY

Maintain BUY, DCF-based SGD0.25 Target Price, 19% upside plus c.3% FY20F yield.
Hyphens Pharma’s 3Q19 revenue grew 4.2% y-o-y to SGD30.7m, vs a decline of 6.1% y-o-y last quarter. Improvement was seen across all segments during the quarter – specialty pharmaceutical principals (+6% y-o-y), proprietary brands (+8.3%) and medical hypermart and digital (0.2% y-o-y).

HYPHENS PHARMA INTERNATIONAL LIMITED (SGX:1J5)'s 3Q19 revenue improved by 4.2% y-o-y to SGD30.7m, and GPM widened to 35.4% from 32.3% on higher revenue contributions from its specialty pharmaceutical segment and proprietary brands, which recorded higher GPMs. See Hyphens Pharma Announcements; Hyphens Pharma Latest News.
Distribution costs, meanwhile, rose 15.4% to SGD6.2m due to higher promotional efforts and an increase in human capital. We expect distribution costs to increase, as the group continues to strengthen its human resource capability.
Hyphens Pharma recorded PATMI of SGD1.8m (+51.5% y-o-y) and SGD4.9m (5.9% y-o-y) for 3Q19 and 9M19, which puts it on track to meet our full-year forecast of SGD6.1m.

Proprietary brands segment grew 8.3% in 3Q19 to SGD3.6m from SGD3.3m on higher sales of Ceradan dermatological products.
Sales of Ceradan Advanced – which is only available in clinics and hospital retail pharmacies – have increased gradually since its launch earlier this year. Other products under the Ceradan brand also recorded higher revenue, since the group expanded the range through over-the-counter channels.
Ceradan products are currently sold in Singapore and Malaysia. Moving forward, the group has plans to launch these products in another country. As Vietnam is its second largest market, we think that this is the most likely destination.

Specialty pharmaceutical segment’s revenue grew 6% y-o-y to SGD16.9m, from SGD15.6m (-14.1% y-o-y) in 2Q19.
The increase in demand came from most of its regional markets – particularly in Singapore, where there has been a pick-up in demand for D-Cure, which is used to prevent and treat Vitamin D deficiency. As Vitamin D may play a vital role in the prevention and treatment of illnesses associated with ageing, we believe demand for this product will continue to be healthy.

With net cash of SGD23m and positive operating cash flow, we believe Hyphens Pharma is likely to reward shareholders with higher dividends. Based on a payout ratio of 30%, which is similar to that of the last financial year, estimated DPS for FY19F could be SGD0.006. This signifies a 10% increase, from SGD0.0055 in FY18. See Hyphens Pharma Dividend History.

At its last close of SGD0.21, Hyphens Pharma was trading at a 19% discount to its IPO price, with a FY20F dividend yield of 3.4%. See Hyphens Pharma Share Price; Hyphens Pharma Target Price.
We think Ceradan product sales will continue to be robust.
Key downside risks to our call include unsuccessful product registrations, reliance on relationships with brand principals, and FX fluctuations.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-11-20

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