Analysts at CGS-CIMB Research and SAC Capital are keeping their “add” and “buy” calls on Hyphens Pharma as they view the company’s acquisition of the remaining 58% stake in Ardence Pharma as favourable.
In his Oct 20 report, CGS-CIMB analyst Tay Wee Kwang describes Ardence as a strategic asset in growing Hyphens Pharma’s medical aesthetics business.
In FY2022, Ardence generated sales of $2.8 million and net profit of $817,000 as per Hyphens Pharma’s announcement. The acquisition of the remaining stake in Ardence is to take place across three tranches, with the last tranche expected to complete by FY2027.
The first tranche will see Hyphen Pharma’s stake increase from 42% to 65% for a consideration of about $1.9 million — valuing Ardence at $8.1 million or an implied FY2022 P/E of 9.9x. This is expected to be completed by end-FY2023.
Tay thinks that the valuations are attractive, given Ardence’s superior net profit margin of 29.4% to Hyphen Pharma’s 7% in FY2022. Additionally, Ardence has stronger growth potential, in which its revenue and net profit doubled y-o-y from FY2021 to FY2022, as mentioned at an analyst briefing.
Ardence was founded in 2018 as a boutique pharmaceutical company serving more than 250 medical aesthetics clinics in Malaysia. It is the exclusive distributor of anti-aging injectables Plinest and Newest within Southeast Asia. This, coupled with a licensing model that removes the need for further drug testing presents opportunities for rapid geographical expansion, highlights SAC analyst Nicole Lim Qiuni.
Although the incremental net profit contribution from the additional 23% stake in Ardence is likely negligible in the near term, Tay is positive on the deal due to the cross-selling opportunities.
Lim concurs, adding that the acquisition would provide access to new distribution lists and diversify product lines within a market poised for exponential growth, cementing its position as a major player. As Hyphens Pharma has ventured into aesthetic medicine with brands TDF and Nabota, acquiring Ardence allows for horizontal integration which often leads to economies of scale.
Tay and Lim have maintained their target prices at 34 cents and 33 cents respectively.
As at 2.18pm, shares in Hyphens Pharma are trading flat at 28 cents.
