Sunday, June 7, 2020

Hyphens Pharma International Ltd (SGX: 1J5) - Uncovering Healthcare Gems

Hyphens Pharma International Ltd (SGX: 1J5) is a pharmaceutical company which focuses on the sales and marketing of specialty pharmaceutical products in key ASEAN countries through exclusive distributorship or licensing agreements with brand principals mainly from Europe and United States.

The company was listed on 18th May 2018 about two years ago on the SGX Catalyst.

Since then, they have grown over the years and have done reasonably well in the midst of the pandemic outbreak through the product offerings they provide.

I was invited to their recent results briefing which I attended and had a chance to speak and ask my questions directly with their CFO, Lee Wei and CEO, See Wah.

Core Businesses

Before we go into that and also run through their recent Q1 FY2020 results, let me give a brief context of their main core businesses.

The Group's core business comprises of 3 main segments: Specialty Pharma Principals, Proprietary Brands and Medical Hypermart & Digital.

The Group has exclusive distributorship to sell and distribute specialty products in countries that they have agreements on. The Group also owns well-known proprietary brands of Ceradan® and Ocean Health® supplements that I personally consume at home myself.

Our family had also used the nasal spray product, Sterimar® for our children when they were younger.

Financial Results

The Group had a strong run of revenue and profits growth since FY2015 before they went IPO in FY2018.

5 Year CAGR for revenue and profit after tax increase 11.1% and 6.3% respectively.

The number would have been higher if not for the IPO expenses that they incurred in FY2018 that dragged the numbers down by a little bit.

Still, you can see from the past growth trend and after attending the call myself, I am able to appreciate the business model a lot better than before.

The Group recently released its Q1 FY2020 results which saw a strong double digit growth in both topline and bottomline.

Revenue increased by 16.4% YoY or by S$4.4m mainly due to higher sales of the Specialty Pharma Principals segment from the higher demand in Singapore and Vietnam.

The increase was also complemented by the resurging sales of their dermatology products under Ceradan®TDF® and Ocean Health® brands as well as medical hypermart that included sales of PPE suits to hospitals and pharmaceuticals.

Across all business segments in all geographical regions, the businesses have registered double digit growth, which is a testament to their strong product performance during the Covid period. Margins have also increased due to the strong mix of product offerings.

Is The Growth Sustainable Post-Covid?

One of my areas of concern is the sustainability of these growths especially during a one-off event like Covid so I asked during the call if we will see a reversal of the trend post-Covid period.

The management were very candid about prospecting life after Covid. While the outbreak does contribute to the increase amount of sales in Q1 FY2020, they think that the trend should continue to increase over time.

One of the initiatives which the Group have taken during Covid is to increase their omni-channel of sales through engaging more digital partnership with the likes of Lazada and Shopee.

While direct sales through B2C is still a small proportion of the overall sales right now, they are optimistic that the e-commerce trend of buying products online getting more popular.

In addition, the Group continues to plan for new product offerings in the next few years - a couple in dermatology and a few in supplements which are ready to be launched this year while the rest are currently in registration or development pipeline.

This process might take 1 to 2 years depending on the requirement of each country's regulatory authority.

Dividend Payout

The Group remained committed to pay at least 30% of their earnings as dividends as evident in FY2019 where they have doubled their dividends to 1 cent upon strong earnings.

The rest of the retained cash is to conserve for any opportunistic organic and inorganic move through more product offerings, geographical expansion, extension of principal agreements or any M&A.


The company has seen high trading volume in the past week which sees its share price rose to its high of 37 cents on the 1st Jun before retreating to 33 cents on the 5th Jun market closing.

At the current share price of 33 cents, the company is trading at a price to earnings of 11.6x based on the forward twelve months earnings based on the Q1 FY2020 annualised results out of which net cash per share is worth 9 cents/share. That means investors are only paying an ex-cash PER of about 8.4x for its business.

For a growth healthcare play company, I don't think the valuation is excessive given how much the other healthcare company's valuation are currently trading in the market.

I'll do a quick run-down of DCF based on the below scenario. Do take note the few assumptions made below:

- IPO expenses for FY2018 of $0.9m were added back to the EBIT.
- Effective Tax Rate of 17% were used.
- $0.85m were added back to the D&A in FY2019 as it is related to Rights Use of Assets based on IFRS16 adoption.
- CAGR based on 12% over the next 5 years which is within management agenda and long term historical 5 year growth.
- Maintenance Capex to D&A ratio is approximately 0.67x based on historical average except during IPO year.

Assuming the Group warrants a multiple of 15x PER, which is just about right to value a healthcare company, the share price intrinsic value should trend closer to 38 cents, which represents close to 15% upside from the current share price.

If we were to subscribe a slightly higher multiples at 17x PER, the intrinsic value would go higher to 42 cents based on these assumptions.


I'll try to balance out with some of the potential risks that investors might want to watch out for.

There are currently two principal agreements expiring at the end of this year and the Group is currently engaging for an extension.

Product registrations also typically take at least 1 to 2 years depending on location, with countries such as Indonesia taking longer due to regulation.

With other healthcare companies trading at typically higher valuation, it is also difficult for Hyphens to engage in M&A that might be accretive to their company, given the low valuation the company is trading right now. Hence, a lot of things might be wait and see until they find a suitable acquisition target.

Disclaimer: This article is a collaboration with Hyphens Pharma International to cover the business model and financial aspect of the company. However, all opinions are purely my own unless stated otherwise.

This article is sponsored by Hyphens Pharma International. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only. It is not intended to be a personalised investment advice or a solicitation for the purchase or sale of securities. Before purchasing any discussed securities, please be sure actions are in line with your investment objectives, financial situation and particular needs. International investors may be subject to additional risks arising from currency fluctuations and/or local taxes or restrictions. The information contained in this publication are obtained from, or based upon publicly available sources that we believe to reliable, but no warranty are made as to their accuracy or usefulness of the information provided, and accepts no liability for losses incurred by readers using research. Recommendations and opinions are subject to change without notice. Please remember that investments can go up and down, including the possibility a stock could lose all of its value. Past performance is not indicative of future results. The shareholders of the Company and potential investors should exercise caution when trading in the Company’s shares. Persons who are in doubt as to the action they should take should consult their legal, financial, tax or other professional advisers.

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  1. I have been invested in Hyphen since IPO and recently let go (early) due to the price spike - looking to buy back at lower valuations. Nevertheless, interesting that the company is sponsoring the post - happy for you!

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