KUALA LUMPUR (Feb 20): Duopharma Biotech Bhd (KL:DPHARMA) may sustain its earnings growth, thanks to lower input costs and higher government pharmaceutical spending, analysts said following a 19% net profit growth in 2024.

Prices of active pharmaceutical ingredients, which are key raw materials, remain on the downtrend across Asia primarily driven by surplus inventory positions and subdued consumer demand, RHB Investment Bank said in a note and upgraded Duopharma to ‘buy’ from ‘neutral’.

“We think there could be a time lag effect” of up to two quarters, before Duopharma could start to benefit from the lower costs to exhaust previously-bought raw materials, the research house said. “We expect its net margin to be sustained within 10% in 2025, from 8% in 2024.”

Following RHB's upgrade, Duopharma now has four unanimous 'buy' calls from research houses covering the stock. Bloomberg's consensus target price is at an average of RM1.50, implying potential upside from the current price in the next 12 months.

Net profit for the year ended Dec 31, 2024 (FY2024) was RM63 million, the company reported on Wednesday, which nearly matched the consensus estimate. Shares of Duopharma meanwhile have remained relatively unchanged since the start of 2025.

Duopharma was also awarded in April 2024 an additional contract by the Ministry of Health for the supply of pharmaceutical products under the approved products purchase list (APPL), raising its products range to 96 from 86 earlier.

The Ministry of Health regulates the procurement of hundreds of pharmaceutical products and medical supplies for government hospitals and clinics through the APPL.

RHB Investment Bank also flagged the potential renewal of a human insulin supply contract with the ministry, as well as the higher healthcare allocation under Budget 2025 to boost sales to public facilities.

For CGS International, Duopharma’s stock is at now an “attractive entry point”, given that its current valuation at 14 times forward earnings is below the three-year mean of 15 times before Covid-19.

“We have seen our thesis on [Duopharma’s] earnings bottoming in FY2023 and rebounding in FY2024 play out,” CGS International noted. Earnings growth in FY2025 will be driven by full-year contributions from the APPL contract secured, a stronger ringgit, and lower raw material prices, the house said.

Duopharma deserves to trade at 15 times its forward earnings, higher than the average 13 times of local peers, due to its “stronger earnings growth and better earnings visibility”, the house added.

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