+ Proprietary brands sustained growth
Proprietary-brand revenue grew 23% YoY as the company continued to move sales online. Revenue was down 2% QoQ due to S$1mn of exceptional corporate sales of Ocean Health® supplements in the previous quarter. Stripping that out, QoQ growth would have been 26%, underscoring the strong organic growth of proprietary-brand products.
Specialty pharma and medical hypermart revenue was flat YoY though up 6%/4% QoQ. This reflected their recovery as Singapore gradually reopened.
– Inventory obsolescence hurt earnings
Inventory in excess of S$600k was marked down as a result of disruptions from COVID-19 across products:
About S$217k in FX losses was recognised from SGD weakness against the USD/EUR as well as depreciation of the rupiah and peso.
Repositioning business to capture long-term growth
The company continued to expand its proprietary-brand business with the signing of two distribution agreements: one for the distribution of Ocean Health® in Sri Lanka with Healthguard Pharmacy Limited (non-listed) and another for Ceradan® in China with Shanghai Good Luck International Trading Co. Ltd. (non-listed). We expect the company to continue investing in this business on account of better margins.
Normalisation expected in FY22
Inventories, receivables and payables may only normalise in FY22 after the company’s reorganisation of its operations.
Maintain ACCUMULATE with reduced DCF TP of S$0.365 from S$0.435
FY20e and FY21e earnings have been shaved by 20% to reflect a total write-off of COVID-19 test kits in the fourth quarter and a pushout in recovery to FY22e. We have also reduced margin expectations from their high base in FY19 and incorporated higher expenses from possible reinvestments in its own-brand business.