• Keep BUY and DCF-based SGD0.25 Target Price, 25% upside plus 2.8% yield.
• Hyphens Pharma 2Q19 revenue decreased 6.1% y-o-y to SGD29m from SGD30.9m on higher sales recorded from the specialty pharma principal in 2Q18 – this is ahead of the products licensing renewal in Vietnam. This decline was offset by a 7.4% increase in sales in the proprietary brands segment due to higher sales of Ceradan brand products. We believe the latter products will take off progressively, while the other business segments should remain robust.

Ceradan Products Are Gaining Traction

• HYPHENS PHARMA (SGX:1J5)’s proprietary brands segment’s revenue rose 7.4% y-o-y to SGD3.6m from SGD3.4m previously. This was mainly due to the expansion of the distribution channel for its Ceradan products.
• Sales of Ocean Health brand products remained flat during this quarter. Through the brand rejuvenation of Ocean Health’s nutritional supplements, the group hopes to attract a wider pool of consumers. Hyphens Pharma has also lined up a series of marketing activities to promote its brands.

New Specialty Pharma Principals

• Hyphens Pharma has signed an exclusive distribution agreement with Syntellix for the distribution of the latter’s MAGNEZIX range of products in Vietnam. MAGNEZIX implants are used to keep broken bone pieces together for quicker and safer recovery.
• Hyphens Pharma has also signed an exclusive distribution agreement with Lundbeck for the marketing and distribution of products targeted at the treatment of central nervous system disorders in Vietnam.

Q-o-q Improvements Seen

• On a q-o-q basis, 2Q19 has seen much improvement over 1Q19: Revenue, gross profit, and profits grew 7.4%, 7.1%, and 14.4%. This was mostly attributable to a 13% growth in the specialty pharma principal segment in Hyphens Pharma’s Vietnam market, as well as a 6.2% growth in the proprietary brands segment due to the reasons mentioned above.
• Hyphens Pharma's 1H19 revenue and PAT of SGD56m and SGD3m represented 44.7% and 50% of our estimates.

Trading at Below IPO Price of SGD0.26

• At the current SGD0.20 price, Hyphens Pharma is trading at a 23% discount below its IPO price and offers a decent yield of 2.8%.
• We think the sale of Ceradan products will continue to perform well. We are also optimistic about the group’s specialty pharma principal segment, as it continues to sign on new principals.
• Key risks include unsuccessful product registrations, reliance on relationships with brand principals, and FX fluctuations.

Source: RHB Invest Research - 20 Aug 2019