THE shares of Duopharma Biotech Bhd, the largest local manufacturer of generic drugs in terms of sales volume and value in Malaysia, has been tagged ‘Outperform’ in an initiation report by Kenanga Research. 

The research house said it liked Duopharma for three reasons, with the first being that it is the bright prospects of the pharmaceutical market in Malaysia. 

Second, its integrated business model encompassing the entire spectrum of the pharmaceutical value chain from research and development (R&D), and product conceptualisation to manufacturing and sales. 

Third, being the dominant local manufacturer of generic drugs in terms of sales volume and value in Malaysia with established household brands. 

In the report dated April 9, the research outfit of Kenanga Investment Bank Bhd valued Duopharma’s shares at RM1.50 in the next 52-weeks. The counter closed at RM1.19 on April 17. 

Duopharma is led by Leonard Ariff who has served the role of group MD since Dec 28, 2017. Prior to his appointment as group MD, he served as the CEO of CCM Duopharma Biotech Bhd from 2008 to 2017. CCM Duopharma was 

formerly a subsidiary of Chemical Co of Malaysia Bhd, but de-merged from the parent in December 2017. 

The report noted that the group’s business model encompasses the entire spectrum of the pharmaceutical value chain from product conceptualisation, starting from R&D to manufacturing and sales. 

It supplies pharmaceutical products and over-the-counter (OTC) supplements to the public sector via government tenders, or via the Ministry of Health’s (MOH) approved product purchase list (APPL), direct tenders and local purchase orders. 

The report noted that the booming Malaysia pharmaceutical industry market is expected to grow at a 2022-2027 compound annual growth rate (CAGR) of 6% over the next five years. 

“We expect Duopharma to capitalise on rising out-of-pocket health expenditure to pharmacies. Case in point, out-of-pocket healthcare spending in Malaysia to private pharmacies delivered a 10-year CAGR of 11%,” it said. 

Investment Merit 

Kenanga Research had the following to say on Duopharma’s investment merit, with APPL to anchor earnings in financial year 2025 (FY25) and FY26. It said: 

“Duopharma supplies pharmaceutical products and OTC supplements to the public sector via government tenders or via MOH’s APPL, direct tenders and local purchase orders. Specifically, revenue contribution (from the ethical businesses) will be enhanced with renewal of the government’s APPL with new contracts awarded in April 2024 worth a total estimated value of RM578 million received from MOH to supply 86 pharmaceutical and non-pharmaceutical products to public hospitals/clinics under the APPL till Dec 31, 2026. These contracts have improved margins, with an in-built US dollar foreign-exchange rate assumption of US dollar/ringgit of RM4.70 compared to the RM4.20-RM4.25 range in 2017. 

“We believe the new rates allow some cost pass-through. Separately, Duopharma was awarded additional contracts amounting to RM88m for the supply of pharmaceutical products to government hospitals and clinics. 

“Public sector sales contributed 50% (FY23: 44%) to Duopharma’s revenue in 2024 underpinned by aggressive bidding supported by increased production capacity and the government’s contract renewal cycle. With APPL contracts awarded in April 2024, the group expects a full-year contribution in 2025 to further boost top-line growth and shift the sales mix more toward public sector sales. We are positive as the higher contribution from the public segment could compensate for any shortfall from the challenging consumer healthcare sales. 

“Generally, MOH regulates the procurement of hundreds of pharmaceutical products and medical supplies for government hospitals and clinics through the APPL. Recall, prior to the latest contract, Duopharma had received multiple extensions for the APPL contract, secured from Pharmaniaga Bhd in 2017 to supply pharmaceutical and non-pharmaceutical products to government hospitals and clinics. 

“The 2024 Malaysian Budget allo- cated RM41.2 billion for the health- care sector for 2024, up 14.1% YoY from RM36.3 billion allocated in 2023 underlining the government’s effort to support the healthcare needs of the population. We expect government spending on healthcare to increase with an ageing popula- tion, longer life expectancy and to provide better healthcare facilities and services. We expect this should provide Duopharma a strong plat- form to grow its local public sector revenue as Duopharma is the largest local manufacturer of generic drugs in terms of sales volume and value in Malaysia.” — TMR