Hyphens Pharma International - Phillip Securities 2021-03-05: Not To Be Written Off

HYPHENS PHARMA INTL LIMITED (SGX:1J5)

Hyphens Pharma International - Not To Be Written Off

Hyphens Pharma (SGX:1J5)'s FY20 earnings of S$6.2mn were 7% below our estimate due to higher distribution and administrative costs.
Proprietary-brand revenue grew 22% to S$4.6mn in 4Q20 despite drag from specialty pharma as a result of COVID-19 disruptions in Vietnam and Malaysia.
Prudent inventory write-offs in 4Q20 not expected to recur.
Operating expenses higher due to promotions, advertising and R&D expenses.
Continued to sow seeds of growth with signing of distribution agreement for Fairence® in South Korea and successful application of e-pharmacy licence in Singapore. Maintain ACCUMULATE.

Hyphens Pharma's proprietary-brand revenue grew 22% y-o-y with growth squared on Ceradan® Ocean Health®. Proprietary brands commanded higher margins and helped to lift GP margins to 38.9% from 37.2% a year ago. As Hyphens Pharma continued to expand its proprietary-brand portfolio, we expect long-term margins to improve on a better revenue mix.

Sales of specialty pharma slid 14% y-o-y to S$16.2mn from S$18.8mn as movement controls restricted sales in Vietnam and Malaysia. While the weakness in Malaysia is expected to spill into the first two quarters of 2021, the rollout of vaccination programmes should help sales recover.

Hyphens continued to provide for inventory obsolescence on PPE, diagnostic test kits and specialty pharma. Plans to offload inventory did not fully materialise, resulting in prudent write-offs which are not expected to recur in subsequent quarters.

Distribution costs increased 3% y-o-y in 4Q20 as Hyphens Pharma ramped up advertising and promotions. Administrative expenses also increased 14% y-o-y to S$2.9mn with higher R&D spending on proprietary brands.
Costs are expected to trend up in the near term, in keeping with Hyphens Pharma’s entry into new markets and new products.

Hyphens Pharma was awarded Singapore’s first e-pharmacy licence by the Health Sciences Authority in January. The licence will enable Hyphens to build its B2B network as telemedicine continues to take root in Singapore.
Hyphens Pharma has also appointed South Korea-based JS Pharma as the exclusive distributor of its pigment lightening cream Fairence® in Korea. Interest to distribute Fairence® in the competitive Korean skincare industry is recognition of the effectiveness of the product and could potentially lead to more product introduction to the Korean market.
Hyphens Pharma continues to plant seeds of growth with an expanded product portfolio in an expanded geography. This is expected to support its long-term profitability.

Hyphens Pharma's FY20 dividend of S$0.0062 per share represents a 30% payout, which management previously guided for the near term.
We cut our payout assumptions to 30% from 50% as short-term reinvestments are required to propel its business forward.

As we roll forward our DCF, our target price for Hyphens Pharma dips to S$0.345 from S$0.365 from higher incremental CAPEX in FY21e compared to FY20, weighing on short-term cash flows.
We expect operations to recover in FY21e. Long-term profitability should be supported by contributions from new products and expanded geographical footprint.
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Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-05

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 0.345 DOWN 0.365