Duopharma Biotech sees substantial compressed margins this year

DUOPHARMA Biotech Bhd is expecting an incremental increase in operational expenditure (opex) that would put a dent in its net profit margins for the financial year ending Dec 31, 2023 (FY23).

CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research) said it came away more negative from Duopharma Biotech’s fourth quarter 2022 (4Q22) results briefing recently when told that the opex expected is between RM15 million to RM18 million due to higher electricity and staff costs.

At the briefing Duopharma Biotech said it is expecting incremental electricity costs of RM8 million to RM10 million per annum as the imbalance cost pass-through (ICPT) surcharge set by the government has been raised to 20 sen per kilowatts hour (kWh) in the first half of this year compared to 3.7 sen/kWh previously.

It is also anticipating an increase in staff costs potentially amounting to RM7 million to RM8 million a year due to a doubling of the wage threshold for overtime payments to RM4,000 per month starting from Jan 23 and a full-year impact from the 25% hike in national minimum wage to RM1,500 per month effective May 22.

However, the research house said the cost pressures should be partly mitigated by price increases for its private sector customers and easing of raw material costs.

Following the briefing, CGS-CIMB Research said it has cut Duopharma Biotech’s FY23-FY25 core earnings per share (EPS) by 16.8%-19% to factor in the higher electricity and staff costs.

“Post-revision, we project FY23F core EPS to fall 16.2% owing to higher opex and interest costs, before rising 2.4%/9.5% in FY24F/25F on steady revenue growth,” it said.

The research firm lowered Duopharma Biotech’s target price to RM1.59 due to the earnings cuts, based on an unchanged 18 times 2024 price-to-earnings (P/E) ratio.

“We downgrade the stock from add to hold, as we see the potentially bleak FY23F earnings outlook weighing on sentiment,” it said. — TMR / pic source: duopharmabiotech.com