Govt buying, lower costs to bolster Duopharma

PETALING JAYA: Duopharma Biotech Bhd’s earnings trajectory remains on an encouraging path, with strong public sector demand and favourable cost dynamics expected to support its near-term performance, analysts say.

Despite normalising insulin sales in the quarters ahead, margins are poised to recover, underpinned by currency and input cost tailwinds.

CGS International Research (CGSI Research) said it is maintaining its “add” rating on the stock with an unchanged target price of RM1.55.

“We are positive on its earnings trajectory, projecting this year’s earnings to grow 40% year-on-year (y-o-y),” the research house said.

It said it views Duopharma Biotech’s current valuation as compelling, trading at 12.4 times 2026’s forecast price-earnings, one standard deviation below its three-year pre-Covid-19 average of 15 times.

“We see Duopharma Biotech’s current valuation as an attractive entry point,” CGSI Research said.

Catalysts for a re-rating include better-than-expected demand and lower raw material costs, while potential risks revolve around margin compression and demand fluctuations.

Duopharma Biotech last week reported a robust first quarter (1Q) for this year, with core net profit jumping 67.1% y-o-y to RM25.5mil, bolstered by stronger sales to the Health Ministry (MoH) under the government’s approved products purchase list (APPL) and a surge in insulin supply, which more than offset lower gross margins and higher operating costs from the increase in sales volumes.

Revenue for the quarter rose 36.2% y-o-y, attributed to new APPL contracts secured in April, the resumption of MoH procurement after a December pause, and a regularisation of insulin supply by its partner Biocon.

However, insulin sales, which carry thinner trading margins, weighed on overall profitability.

“We expect Duopharma Biotech’s insulin sales to normalise moving forward, with the supply agreement between Duopharma Biotech, Biocon and MoH having expired on April 28,” CGSI Research said.

A rebound in margins is expected in the coming quarters.

“We expect Duopharma Biotech’s gross margins to rebound in subsequent quarters, especially given the lagging effect of the strengthening of ringgit against US dollar and decline in prices of active pharmaceutical ingredients and freight rates since 3Q24,” CGSI Research said.