DPHARMA: Pharmaceutical Firm Exceeds Expectations on Robust Sales and Margin Growth
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 |
| Last Traded | RM0.20 |
| Recommendation |
A prominent pharmaceutical company reported core earnings for the first nine months of 2025 that were well within market expectations, driven by strong public sector sales and improved operational efficiencies. The company’s 3Q25 core net profit soared to MYR26.1 million, marking a substantial increase of 46% year-on-year and 18% quarter-on-quarter. These results place 9M25 earnings at MYR79.1 million, representing 85% of the investment bank’s full-year forecast and 86% of the Street’s estimates, indicating a performance in line with anticipated seasonality in 4Q25.
Performance Review
The robust performance in 3Q25 was primarily fueled by a 7% year-on-year revenue growth, attributed to strong sales to the public sector under the expanded Approved Products List (APPL) contract, which includes 100 SKUs valued at MYR684 million. A significant highlight was the expansion of the Gross Profit Margin (GPM) by 4 percentage points year-on-year to 40.8%, and 3.3 percentage points quarter-on-quarter. This margin improvement is largely credited to the delayed impact of easing active pharmaceutical ingredient (API) prices combined with a softer Malaysian Ringgit against the US Dollar.
Future Outlook and Challenges
Looking ahead, the company’s prospects remain positive, underpinned by ongoing support from the additional Letter of Award from the Ministry of Health (MOH) for pharmaceutical products under the APPL contract. Furthermore, a higher budget allocation to the MOH is expected to boost public sector sales, which currently account for approximately 50% of the company’s total sales. Continued normalisation of API prices and a weakened US Dollar are anticipated to sustain near-term profitability.
However, a key challenge remains the pending outcome of the human insulin supply contract. The existing contract expired on October 28, and no major award announcements from the MOH have been made. There is a highlighted possibility of a dual supplier outcome, which could potentially result in a 5% earnings impact on FY26 forecasts, assuming a 10% net profit margin. Downside risks identified include lower-than-expected sales volume, a strengthening of the US Dollar against the Malaysian Ringgit, and higher-than-expected operating costs.
Investment Recommendation
The investment bank has maintained its “BUY” rating on the company, reflecting confidence in its solid earnings visibility and sustained consumer demand. The target price has been slightly raised to MYR1.60, up from MYR1.56 previously, inclusive of an 8% ESG premium. This revised target price offers an upside of 24.6% from the last traded price of MYR1.28. The valuation implies a 15.8x FY26 P/E, which is 0.25 standard deviations below its 3-year historical mean, reflecting the residual earnings risk from the pending human insulin contract outcome.
