Quality earnings to come in FY22F
? GP jumped 10.2% yoy in FY21 due to lower revenue contribution from Vietnam; we expect FY22F GPM to normalise to 37.7% following reopenings.
? Novem acquisition was completed earlier than expected; we forecast Novem to add c.S$1.5m to bottomline in FY22F (c.22% of FY21 net profit).
? Reiterate Add. Our TP remains at S$0.36. We expect Novem and reopening of its operating markets to drive 18.7% yoy net profit growth in FY22F.
GP margins expected to ease, offset by revenue growth
HYP’s GP improved 5.1% yoy to S$48.1m in 2H21 due to higher specialty pharma portfolio margins. GP rose 10.2% yoy to 38.2% in FY21. Gross margins improved due to lower sales in Vietnam (-10.8% yoy in FY21) on strict Covid-19 related lockdowns in 3Q21. As Vietnam and HYP’s other markets reopen, we expect FY22F GP margins to ease due to normalised contribution across HYP’s operating markets. But lower GP margins should not be a cause for concern as it should be supported by improved sales momentum from Vietnam as well as the Medical Hypermart segment, which typically records lower gross margins compared to other segments. Vietnam is HYP’s second-largest market at c.33% revenue contribution in FY21. We expect revenue to increase 15.2% yoy to S$140.9m in FY22F as revenue normalises on economic reopening, especially in Vietnam.
Expect Novem acquisition to contribute c.S$1.5m to bottomline
FY21 revenue and core profit was in line at 99%/103% of our estimates. HYP completed the acquisition of Novem by end-FY21, ahead of our expected end-FY22F. This implies that Novem’s full FY22F earnings will be reflected in HYP’s books. We expect Novem to contribute c.S$1.5m (c.22% of FY21 net profit) to HYP’s FY22F bottomline, based on Novem’s FY18-20 net profit of S$1.5m-2m, which would be partially offset by finance costs and goodwill amortisation in relation to the acquisition. HYP’s inventory days jumped to
118 days in FY21 (vs. 80 days in FY20) because Novem’s books were consolidated in their entirety in FY21 despite only contributing a month’s worth of revenue. Management guided that Novem tends to keep six months’ worth of inventory as Novem’s tender contracts with restructured hospitals typically require them to keep at least five months’ worth of stock on hand. We thus adjust FY22F inventory days to 107 days.
Reiterate Add with a DCF-based TP of S$0.36
We lift FY22F/23F revenue forecasts by 3.0%/2.9% to factor in Novem’s sales and gradual reopening of HYP’s operating markets, especially in Singapore and Vietnam (collectively accounted for c.84% of FY21 sales). We also trim our FY22F-23F EPS by 0.9-1.2% on higher distribution cost assumptions as it grows the business on better market conditions in FY22F. Our DCF-based TP stays at S$0.36 (WACC: 9.1%). We expect a higher dividend payout of 0.8 Scts in FY22F, up c.20% from FY21 on contribution from Novem and a dividend policy of a minimum 30% payout ratio. Re-rating catalysts: more earnings accretive acquisitions. Downside risks: reimposed lockdowns in its operating markets.