HYPHENS PHARMA: IS THIS PHARMA COMPANY UNDERVALUED? (Guest Post)
The company was founded in 1998 and was listed on the Singapore Exchange’s Catalist board back in 2018. Hyphens’ share price performance was rather lackluster since its listing, hovering significantly below its IPO price of S$0.26 and hit a low of S$0.18 during the recent March COVID-19 pandemic driven sell-down.
This post was originally posted here. The writer, Royston Tan is a veteran community member and blogger on InvestingNote, with username known as Royston_Tan.
However, following a strong set of 1Q20 results, the company’s share price subsequently rebounded to hit an all-time high of S$0.39 in June 2020. Is there potentially more share price upside for the company? Let’s take a closer look.
Hyphens Pharma (Hyphens) is Singapore’s leading specialty pharmaceutical and consumer healthcare group. The company operates in three business segments:
Specialty Pharma Principals which is the largest contributor of both revenue and earnings to the Group. The company boasts more than 30 products in its portfolio and this figure is consistently increasing.
Proprietary Brands currently comprise of dermocosmetic products marketed under Ceradan® and TDF® brands as well as health supplement products marketed under their Ocean Health® brand. While this segment generates the lowest profitability among the three segments due to heavy investments in brand building, it has the highest revenue growth potential as well as earnings longevity.
Medical Hypermart and Digital is a B2B model where the company engages in the wholesale of pharmaceuticals and medical supplies in Singapore through Pan-Malayan. This segment is the second-largest revenue and earnings contributor to the Group but we note the potential lumpiness in revenue/earnings from one-off large tenders.
STEADY FINANCIAL PERFORMANCES OVER THE PAST 3 YEARS
INCOME STATEMENT
The company’s past 3-years financials painted a picture of earnings stability but not one that is truly exciting. While its reported net profit declined from S$6.1m in 2017 to S$5.4m in 2018, this was due to one-off IPO expenses amounting to c.S$0.9m. Its adjusted net profit was S$6.3m in 2018, representing a 3.6% YoY growth. In 2019, earnings grew by a similar 3.5%, a rate likely deemed too low by the market to justify a share price re-rating.
However, despite widespread business standstill in 1Q20 due to COVID-19, the company reported a strong set of 1Q20 financial results with Group revenue growing by 16.4% YoY, spearheaded by its proprietary brand segment. Coupled with slower growth in expenses, Hyphens’ 1Q20 operating margins improved by 1.6ppt and consequently grew its net profit by 48.6% YoY to hit S$2.1m. …
