CGS-CIMB on Friday (Jan 7) initiated coverage on Hyphens Pharma $ Hyphens Pharma: 1J5 +3.39% with an " add" call and target price of S$0.36. The research team believes the pharmaceutical and consumer healthcare company' s share price has yet to reflect the value of its Novem acquisition.

 

The acquisition is also supportive of the group' s earnings per share (EPS) growth, the research team noted. Hyphens is currently trading at 11.1 times CGS-CIMB' s FY2022 earnings estimates - 1 standard deviation below its historical mean.

 

UOBKH' s target price of S$0.36 is 13.5 times its estimates for FY2022 earnings and 1 standard deviation above its historical mean since the group' s listing in 2018.

 

This represents a potential upside of about 18 per cent from the counter' s trading price of S$0.305 as at 1.10 pm on Friday. Hyphen' s shares were up 3.4 per cent or S$0.01 at the time.

 

On Nov 9 last year, Hyphens said it will acquire the Novem group of companies - Novem Healthcare, Novem Pharma and Novem Sciences - for S$16.3 million to augment its current healthcare products and services. The group completed the acquisition on Dec 3.

 

CGS-CIMB analyst Tay Wee Kuang expects the acquisition to contribute to a growth forecast of 22.9 per cent for Hyphens in FY2022. He noted that the acquisition offers quality earnings with " historically superior" margins of about 18 per cent, compared to the group' s historical average of about 5 per cent.

 

In Tay' s view, the acquisition will grow Hyphens' customer base, given that 60 per cent of Novem' s business caters to the public healthcare sector, whereas 90 per cent of Hyphens' sales have historically gone to the private healthcare sector.

 

In addition, Hyphens could " reap further synergies" through cross-selling opportunities, given the differing sales channel exposure between Hyphens and Novem, Tay said. The group will also be able to bring Novem' s portfolio to its other operating markets such as Vietnam, Malaysia and Indonesia, he added.

 

" We believe the value behind the acquisition of Novem remains overlooked due to the financial attractiveness of the acquisition, as well as the potential latent synergies that will bring longer-term value for Hyphens," Tay said.

 

The report also highlighted Hyphens' maintenance of a strong cash position since its listing in 2018, which is supportive of " sustainable and growing dividends" . In fact, Hyphens' net cash position of S$26.8 million as of 1H2021 and cash position of S$33.6 million are " at record levels" , according to Tay.

 

The analyst also likes Hyphens for its " resilient" business model and growing product portfolio, as well as its sales and distribution channels that will " drive future earnings growth" .

 

" Based on the lead times for acquiring product registration and sales conversion, we think that Hyphens will be able to achieve stable, sustainable growth moving forward, with potential to grow its product portfolio through various means given its net cash position," said Tay.

CATALIST-LISTED Hyphens Pharma $ Hyphens Pharma: 1J5 0% has inked an exclusive licensing deal to commercialise an antibody biosimilar drug in Singapore, Malaysia, and the Philippines, in order to expand their dermatology product offerings for Asia.

 

The pharmaceutical and consumer healthcare company announced on Tuesday (Dec 14) that it has signed an exclusive licence and supply agreement with Favorex, a subsidiary of DKSH, to commercialise Ustekinumab biosimilar, produced by multinational biopharmaceutical company Alvotech.

 

Biosimilars are close copies of biologic drugs with expired or expiring patents. The Ustekinumab biosimilar, which is undergoing clinical studies, is a human monoclonal antibody that aims to treat immune-mediated disorders such as plaque psoriasis, psoriatic arthritis and Crohn' s disease. Worldwide sales of Ustekinumab are estimated to reach US$8.4 billion in 2021, according to an online report.

 

Lim See Wah, executive chairman and chief executive officer of Hyphens Pharma, said in a press statement: " Dermatology is one of our focus areas and we want to bring to market innovative medical dermatological products to meet the needs of patients suffering from various skin disorders."

 

" We were interested to add Ustekinumab to our product portfolio because of its dermatology indications, which we believe will help to enhance our dermatology product offerings for Asia," he added.

 

The exclusive licence and supply agreement will not have a material effect on the net tangible assets or earnings per share of Hyphens Pharma International - of which Hyphens Pharma is a subsidiary - for the financial year ending Dec 31, said Hyphens Pharma.

 

Hyphens Pharma International has, on Nov 9, proposed to acquire the Novem group of companies for a total consideration of $16.28 million.

 

The group&rsquo s wholly-owned subsidiary, Hyphens Pharma Pte Ltd (HPPL) entered into a sale and purchase agreement (SPA) with Ng Kian Peng Albert and Lau Jui Fang for the acquisition of 100% of the issued and paid-up shares in Novem Healthcare, Novem Pharma and Novem Sciences.

 

Of the consideration amount, 85% &ndash or $13.8 million &ndash will be paid in cash and split equally between Ng and Lau.

 

The remaining 15% will be paid via the allotment and issuance of 8.34 million new shares in the capital of Hyphens Pharma International at an issue price of 29.26 cents. The shares will also be split equally between Ng and Lau. The value of the shares is estimated to be at $2.44 million.

 

Ng is the founder of the Novem group. He is a registered pharmacist with over 20 years of industry experience in the distribution, sales and marketing of healthcare products.

As part of the proposed acquisition, Ng will be appointed as managing director and director of each of the target companies.

 

He will thus continue to oversee and management the companies&rsquo operations even after the completion of the acquisition.

 

Novem is a leading Singapore-based healthcare-focused distributor of pharmaceutical and nutraceutical products, as well as medical devices.

 

The group represents over 40 brand principals mainly across Europe and Asia. It serves over 1,000 customers such as hospitals, polyclinics, specialists and general practitioners. It offers over 150 products including a proprietary brand of generics and in-house developed nutraceutical products.

Novem Sciences holds a 45% stake in Ardence Pharma, an associated company incorporated in Malaysia. The other 55% stake in Ardence Pharma is held by IREG Solution.

 

Once the acquisition is completed, the Novem group will become wholly-owned subsidiaries of HPPL.

According to Hyphens Pharma Limited, the consideration also determined the EBITDA of the Novem group for the FY2019 and FY2020 ended December on a cash-free and debt-free basis.

 

The proposed acquisition was a &ldquo strategic opportunity&rdquo for Hyphens Pharma Limited to acquire a portfolio of businesses that is &ldquo financially attractive&rdquo from a revenue scale and earnings accretion perspective. The Novem group comes with a good management team as well, read the filing posted on SGX.

 

On the acquisition, Novem&rsquo s founder and managing director Ng says, &ldquo We look forward to being a part of Hyphens Pharma, the leading specialty pharmaceutical and consumer healthcare group in Singapore. Being part of the group, Novem will be able to leverage on Hyphens&rsquo strength in the private sector to accelerate our growth in Singapore and capitalise on new opportunities.&rdquo

 

&ldquo Besides being earnings accretive, the acquisition of Novem will help to cement our market leadership in Singapore and expand our product portfolio, while giving us access to new principals, market segments, and customers like the restructured hospitals. Our proprietary brands business segment will also get a boost with the addition of Novem&rsquo s proprietary products and we expect to accelerate our growth as we reap revenue synergies with them,&rdquo says Lim See Wah, executive chairman and CEO of Hyphens Pharma.

KGI Securities has upgraded its call on Catalist-listed Hyphens Pharma from " neutral" to " outperform" with a higher target price of S$0.43 compared to S$0.36 previously, upon rolling forward estimates to base its valuation off FY2022 forecasts.

 

In a Monday report, KGI analysts said they see potential upside for the stock' s base case price-to-earnings (P/E) ratio of 17 times, as its mature competitors are maintaining a P/E average and forward P/E average of 19.9 times and 25.5 times, respectively.

 

While Hyphens' FY2020 results fell short of expectations, KGI' s analysts are positive on the group' s strong turnaround in Q1 FY2021, which saw a 7.5 per cent year-on-year increase in revenue due to a pickup in the group' s Vietnam segment.

 

This led to the group delivering its highest-ever quarterly sales for the period with its profit margin hitting 6.3 per cent.

 

" However, for H2 FY2021, we might not see the results of H1 FY2021 being replicated as Covid-19 cases started surging in the end May 2021. Hyphens may also face operational difficulty in H2 FY2021/H1 FY2022 as their inventory in Vietnam runs low and distribution agreement renewals continue to be delayed," they cautioned.

 

The analysts nonetheless continue to like Hyphens for its growing portfolio of high-margin proprietary brands, along with its subsidiary' s recent e-pharmacy licence to provide telemedicine services as well as partnerships with online business-to-consumer (B2C) platforms for the sale of its proprietary products.

 

With continued expansion of the group' s medical hypermart and digital business this year, coupled with the rising trend in telehealth services, KGI is expecting these segments to contribute to the group' s topline growth going forward.

 

The analysts also highlight e-commerce as a growing trend which they believe will support consistent income generation from the B2C online sales segment.

 

" Hyphens proprietary brands segment saw 26 per cent growth from FY2019 to FY2020, representing the most significant jump over the last four years," they noted.

 

" The Ocean Health brand did remarkably well under the influence of the Covid-19 pandemic as consumers purchased a higher volume of vitamins than usual for immunity purposes&hellip We foresee a continuity of this trend in the short and mid-term, considering that the pandemic is evolving into an endemic and hence a continued demand for supplements."