• 1Q23 results were below expectations. Revenue and PATMI were 19%/10% of our forecasts. Revenue suffered from the cessation of Biosensors and delay shipments in Vietnam.
• Specialty pharma revenue declined by 27%. The loss of Biosensor distribution in Dec 22 was well flagged. The surprise was supply disruption from three specialty pharma manufacturers.
• We cut our FY23e earnings by 31% to S$9.1mn and the DCF target price is lowered to S$0.39 (prev. S$0.445). Our BUY recommendation is maintained. We expect the supply constraints to spill over into 2Q23. Proprietary brands have performed well with 16% growth. It will be a multi-year journey for proprietary brands to reach scale and compete even more effectively in the region. Investments into DocMed, another $5.4mn over the next 2-3 years could drag earnings but can be deemed as one-off upfront cost to develop the platform.

The Positive

+ Healthy growth in proprietary brands. Proprietary brands revenue increased by 16% in 1Q23 supported by higher demand for Ceradan® dermatological products. Ceradan® and Ocean Health® have a pipeline of new products to be launched this year. The Group launched Ceradan® Advanced Emollient Wash in Singapore and Malaysia during 1Q2023.

The Negatives

– Supply disruption in specialty products. Specialty revenue fell 27% due to the cessation of the distributorship of Biosensors products in Dec 22 and the delay in the shipment of key products in Vietnam. Of the three suppliers facing production disruption, two resumed production in 2Q23.

– Weaker operating margins. Net profit margin suffered from higher R&D and travelling expenses. Margins will be weighed down further from DocMed investments into the platform.