KUALA LUMPUR (April 3): CIMB Securities said the reshuffling of the government's human insulin contract was a "neutral" development for Duopharma Biotech Bhd (KL:DPHARMA), despite the company losing its lead supplier status to Pharmaniaga Bhd (KL:PHARMA).
In a note to clients, the research house maintained its “buy” recommendation on Duopharma even as its latest estimates indicate that Pharmaniaga has captured an estimated 65% of the Ministry of Health's (MOH) contract value. The total contract value has likely expanded by 15% to RM433 million from RM375 million previously, it said.
The estimates are based on Pharmaniaga's reported win of a three-year human insulin contract award by the MOH worth RM281.7 million by The Edge Malaysia, citing sources and information from the government procurement website. The contract was said to be awarded on March 10 this year.
While the optics of losing a 65% market share is significant, CIMB Securities argued that the financial impact on Duopharma's bottom line is negligible, given the human insulin contract’s relatively small margin contribution to the company’s bottom line.
"Prior to the contract split with Pharmaniaga, human insulin was estimated to account for less than 5% to DBB’s earnings in CY25. Following our earnings revisions, our target price (TP) is lowered by 2% to RM1.88 (from RM1.93), based on an unchanged CY27F P/E of 16x (in line with three-year historical mean)," CIMB Securities said.
"Despite the market share loss, we continue to favour DBB for its (i) dominant market position within a duopoly and (ii) strong earnings visibility under the MOH concession agreement," it said.
However, CIMB Securities trimmed its target price for Duopharma to RM1.88 from RM1.93 previously, as it reduced the company's 2026-2028 core net profit estimates by 0.4%, 2% and 3%, respectively.
It had previously assumed a 70:30 contract split between the two pharmaceutical companies, with a 30% share for Duopharma. That scenario analysis projected a potential full-year earnings impact for Duopharma to be about 3% in 2027.
Duopharma is currently supplying recombinant human insulin under an interim contract worth RM65.1 million until May 2026. Management expects the formal award of a new three-year contract by the third quarter of 2026, CIMB Securities noted.
The contract shift comes as Duopharma's valuation hit a trough. According to data from AskEdge, Duopharma is currently trading at a price to earnings ratio of 14.4 times — its lowest in recent history.
The company's price to net asset value ratio stands at 1.7 multiples. While higher than most peers, this price to net asset value (P/NAV) ratio is also at its lowest level in recent years.
In contrast, Pharmaniaga, which recently emerged from its Practice Note 17 status, has a price to earnings ratio of 34.5 times and P/NAV ratio of 3.8 times, the highest among its peers.
Duopharma shares closed three sen or 2.29% lower at RM1.28 on Friday. At its current price, the group has a market capitalisation of RM1.23 billion.
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