• 2023 results beat expectations. Both revenue and PATMI were 106% of our forecast. Other markets, such as Indonesia and the Philippines, grew faster than expected due to the maiden contribution from Laboratoires Gilbert S.A.S exports.
• Revenue in 2H23 was a record S$96mn following a 27% YoY jump in specialty pharma to S$60mn. However, margins declined from higher distribution costs.
• We expect earnings to recover as the supply chain for specialty products from Europe normalises. Other growth drivers for Hyphens include aggressively expanding the number of principals for its specialty products, exporting to new markets, and SKU extensions of its proprietary brands. Additional costs by DocMed are also at a more gradual pace. Our BUY recommendation and DCF target price of S$0.35 is maintained.

The Positive

+ Rebound in specialty pharma revenue. Despite the loss of Biosensor’s S$5mn revenue contribution in 2023, revenue in 2H23 rose 27% YoY to a record S$61mn. The addition of new specialty products, namely Laboratoires Gilbert S.A.S, drove growth in the export sector. Revenue from other countries (Indonesia, Phillippines) tripled in 2H23 to S$13.7mn.

The Negative

– Weaker gross margins and higher opex. EBITDA margins declined 1.5% points YoY to 8.3% in 2H23. We believe a combination of higher export sales, an increase in headcount costs and additional expenses from DocMed drove down margins.

Outlook

Investments in a larger management team has resulted in more aggressive expansion in principals, products and distribution. We believe Hyphens is on a faster growth trajectory:

• Expanded its product line-up in specialty pharma in 2023, such as Byfavo®, Plinest, Nabota®, and Laboratoires Gilbert S.A.S. These brands can contribute in 2024.
• Build new or expand further into other countries, namely the Middle East, Indonesia, and the Philippines.
• Product extensions of its established proprietary brands such as Ocean Health® Joyful Gummies, women’s multivitamins, immune support, etc.
• Platform-related costs at DocMed will weigh hypermart earnings down, but the business is expanding into Malaysia and Vietnam.

Maintain BUY with unchanged TP of S$0.35

Hyphen enjoys a dividend yield of 4% and trades at a PE ratio of 7x FY24e.