Net loss narrowed 51% YoY to S$2.8mn in 1H21 to beat expectations by 63% on FX gains of S$2.2mn – without which results would have missed by 25%.
The Positive
+ Strong demand for products
Revenue was up 182% YoY from S$294k to S$830k in 1H21. Excluding one-off out-licensing fees of S$150k in 4Q20, quarterly run rates of S$415k in 1H21 were comparable to the S$410k in 4Q20.
Specialty pharmaceutical revenue grew 112%. Growth could have been better if not for on-off lockdowns in Melbourne, which affected footfall in pharmacies and sales to clinics. The company was also unable to conduct training for its newly-launched medicinal cannabis wafer, Xativa.
Nutraceutical revenue skyrocketed 267% to S$488k YoY, supercharged by online sales on their JD.com and Tmall platforms. Demand for its skincare supplement, LumeniX and anti-ageing NAD (nicotinamide adenine dinucleotide) products, MetaboliX and RestoriX, continued to climb. Reception of its NAD products is encouraging as they are non-wafer products whose production is not affected by a shortage of freeze dryers.
The Negative
– Negative margins
Gross margin was -16% in 1H21, an improvement from the -57% a year ago. While demand for its wafer products remained robust, a shortage of production capacity did not help operating margins. Planned installation of additional freeze dryers that will increase wafer production by 5-6-fold has been delayed by COVID-19 supply-chain disruptions to April this year.
COVID-19 disruptions
Apart from the delayed installation of additional production capacity, the timeline for a Wafermine out-licensing deal continues to hinge on border restrictions in Australia. While iX has received interest from potential partners, in-person meetings remain non-viable. Due diligence, including visits to production plants in Australia, could not be completed.
The disruptions will slow down iX’s business turnaround that was previously expected by FY21. Nevertheless, with vaccine rollout in Australia soon, we are confident that deal-making and production expansion can resume by early FY22.
WaferiX’s intellectual property remains the jewel in the crown
R&D costs rose 4% YoY as the company continued to develop its medicinal cannabis range in preparation for more extensive commercialisation once the business environment improves.
With its extensive patents granted around the world, iX stands to unlock value from its WaferiX technology in the future. It can pursue out-licensing deals beyond existing products under its belt, including the technology itself for new product development.
Recommendation
Maintain BUY with a lower target price of S$0.445 from S$0.455. We cut FY21e earnings by S$9.5mn to reflect a sales loss of S$1.5mn as a result of delays in capacity installation. We also defer the S$8mn from the potential out-licensing deal to FY22. While many business plans have been put on hold by the COVID-19 pandemic, the company should be on the cusp of profitability once the disruptions are over.
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
