Building up the HYPe

■ 1Q22 net profit of S$3.2m (+122% qoq; +50% yoy) beat our/consensus
expectations at 39.3%/40.2% of FY22F.
■ Revenue grew across all three business segments, driven by improved
macroeconomic conditions as well as contribution from Novem’s acquisition.
■ Reiterate Add with an unchanged DCF (WACC: 9.1%) TP of S$0.36.
Increased supply/freight costs are possible headwinds.

Robust growth across all business segments

1Q22 revenue of S$39.2m (+24.9% qoq; +18.5% yoy) was in line with our/consensus
expectations at 27.0%/27.5% of FY22F. The newly acquired portfolio from Novem
contributed S$3.5m in revenue for the quarter, which implies that HYP would still have
observed robust 8% revenue growth otherwise. All three segments reported revenue
growth, with the higher margin segments, i.e. specialty pharma principals (+24.4% yoy)
and proprietary brands (+12.8% yoy), outpacing the medical hypermart and digital
segments (+10.8% yoy). The improved sales mix also led to a 1.7% pt improvement in both
GP and net margins yoy. Consequently, 1Q22 net profit of S$3.2m represents 49.7%
growth compared to the same period a year ago.

Return of patients to public healthcare benefited Novem’s portfolio

1Q22 saw a full contribution from Novem’s portfolio since its acquisition in Dec 2021. We
believe that the higher-than-expected revenue contribution from Novem compared to its
flattish S$10m-11m sales p.a. over FY19-21 was due to the return of patients as the public
healthcare sector in Singapore shifted its focus back to the backlog of deferred treatments
for non-Covid-19 patients over the past two years. From our previous communication with
management, the public healthcare sector typically contributed c.60-70% of Novem’s sales
historically.

Exceptional net margins could normalise in coming quarters

The improvement in net margins highlighted the accretive nature of Novem’s acquisition,
whose business commands a net margin of c.15-20% compared to HYP’s c.5-6%.
However, cost pressures such as rising freight costs and higher opex could thin margins
moving forward. HYP has also disclosed that the purchase price allocation (PPA) for
Novem’s acquisition, which will result in higher amortisation expenses related to intangible
assets involved in the transaction, has not been completed.

Reiterate Add with a DCF-based TP of S$0.36

We reiterate our Add call on HYP with an unchanged DCF-based TP of S$0.36 (WACC:
9.1%). We believe the market has not recognised the impact of Novem’s acquisition on its
earnings profile, which could also translate to future cross-selling opportunities with HYP’s
existing sales channels. Re-rating catalysts: cross-portfolio synergies with newly acquired
portfolio from Novem and more accretive acquisitions. Downside risk: steep cost pressures
that translate to the inability of cost pass-throughs to be effective.