Broker: UOB Kay Hian
Date of Report: 6 June 2025

Duopharma Biotech: Riding the Insulin Wave – Robust Growth, Margin Upside, and Strategic Resilience for 2025

Overview: Duopharma Biotech’s Promising Outlook for Investors

Duopharma Biotech Berhad, Malaysia’s leading pharmaceutical producer, continues its upward trajectory with an impressive sales surge in early 2025, driven by exceptional insulin deliveries. With a strengthened export segment, a strategic position in domestic and government contracts, and improving margins, Duopharma is poised for sustained growth. UOB Kay Hian maintains a “BUY” recommendation, raising the target price to RM1.67, reflecting a 20.1% upside potential.

Company Snapshot: Financials, Market Position, and Shareholder Structure

• Share Price: RM1.38
• Target Price: RM1.67 (previously RM1.50)
• Market Cap: RM1,337.1 million (US\$315.6 million)
• Shares Issued: 961.9 million
• GICS Sector: Health Care
• Bloomberg Ticker: DBB MK
• Major Shareholders:
  • Permodalan Nasional Berhad (PNB): 51.5%
  • Employees Provident Fund (EPF): 6.9%
  • Billion Victory: 2.5%
• 52-week Price Range: RM1.32 – RM1.11
• Recent Price Performance (%):
  • 1 month: 14.9%
  • 3 months: 15.8%
  • 6 months: 12.1%
  • 1 year: 13.9%
  • Year-to-date: 11.2%

Q1 2025 Performance: Insulin Deliveries Drive Sales Surge

Duopharma’s Q1 2025 sales soared by 36.2% year-on-year, with every business segment posting growth. The primary catalyst was a spike in insulin deliveries, contributing 15–20% of quarterly sales—well above the usual ~10% share. This surge was due to frontloaded deliveries before the scheduled expiry of a major insulin contract in April 2025.
Key highlights:

• Insulin contract extension: The three-year RM375 million supply contract was extended by six months as the Malaysian Ministry of Health (MoH) seeks additional tenders. The interim contract offers higher monthly value compared to its predecessor.
• Growth sustainability: Despite a moderation in insulin sales for Q2 2025, the run rate will remain above 2024 levels. Consumer healthcare sales, meanwhile, have normalized.

Margin Trends: Gross Margin Recovery Expected

Gross margin declined to 35.5% in Q1 2025 (down 3 ppt YoY), mainly due to a higher mix of lower-margin public sector sales. However, management reports that active pharmaceutical ingredient (API) costs are moderating. An improved sales mix, alongside lower API costs, is projected to boost gross margin to 37–40% in Q2 2025.

Profitability Outlook: Strong Earnings Momentum

UOB Kay Hian expects Q2 2025 earnings to match Q1’s profit run rate of RM26 million, implying 40–50% YoY growth. The company is also poised to benefit from the ringgit’s strength, having left its USD exposure unhedged for the year. Sensitivity analysis suggests that for every 1% depreciation of the US dollar against the ringgit, earnings would increase by 0.3%.

Key Financial Highlights and Projections

Revenue Mix and Growth Outlook

• 2025 Revenue (RM939.1m):
  • Local Government: 51% (RM477.4m)
  • Local Private: 45% (RM420.2m)
  • Export: 4% (RM41.5m)
• 2026-2027 Revenue: Exports are expected to rise to 7% in 2026 before moderating to 5% in 2027, with local government and private segments maintaining stability.
• PAT Growth: 52.6% YoY in 2025, 9.9% in 2026, and 10.6% in 2027.
• Gross Profit Margin: 37.1% (2025F), improving to 40.8% (2026–2027F).

Strategic Positioning: Insulin Contract and MoH Partnership

Duopharma’s fill-and-finish partnership with Biocon and its alignment with the Ministry of Health’s supplier diversification strategy reinforce its competitive advantage. The extended insulin contract, now of greater monthly value, is likely to be retained beyond the current extension period as the MoH finalizes new tenders.

Currency and Trade Dynamics: Net Beneficiary of Ringgit Strength

Duopharma’s unhedged USD position allows it to capitalize on a stronger ringgit. With natural hedging from export sales, the company’s 2025 earnings are sensitive to currency movements, with a positive impact expected from any ringgit appreciation.

Exposure to Global Trade Tariffs

While Duopharma does not export to the US, it sources raw materials and equipment from India and China. In the event of global trade disruptions, such as US-imposed tariffs leading to surplus equipment or raw material dumping, Duopharma could benefit from reduced capex and improved margins.

Valuation: Higher Target Price and Defensive Profile

UOB Kay Hian upgrades its target price to RM1.67, pegging Duopharma at 15.3x PE—reflecting -0.5 standard deviations of its seven-year average PE, a shift from the pre-pandemic mean of 14.7x. This adjustment reflects normalized valuations post-pandemic and a full business cycle outlook. The stock’s robust earnings visibility is underpinned by lower input costs and secured government contracts, making it an attractive, defensive, and domestically driven investment.

ESG Initiatives: Environmental, Social, and Governance Commitments

• Environmental: Duopharma targets replacing 50% of single-use plastics with biodegradable alternatives by 2026, achieving carbon neutrality by 2030, and net-zero emissions by 2050.
• Social: Female representation in the workforce stood at 47.6% at end-2022, up from 47.2% in 2021.
• Governance: 60% of board members are independent directors, reflecting strong governance standards.

Comprehensive Financial Table: Key Metrics

Investment Risks and Earnings Revision

UOB Kay Hian raised its 2026–27 earnings forecasts by 5.1% and 4.6%, respectively, reflecting improved gross margin assumptions from a structural shift in API supply. Key risks include:

• Single customer concentration – Over half of sales stem from government contracts.
• Adverse currency movements – A strengthening US dollar could impact input costs.

Conclusion: Why Duopharma Biotech Stands Out in 2025

With improving financials, strong government relationships, and a robust outlook for margin recovery and earnings growth, Duopharma Biotech is well-positioned to deliver value for investors. Its defensive, domesticated growth strategy and proactive ESG agenda further enhance its appeal as a leading pharmaceutical play in Malaysia’s evolving healthcare landscape.
For investors seeking resilient, growth-oriented exposure within the healthcare sector, Duopharma Biotech offers an attractive proposition with clear upside potential and strong downside protection.