Analysts at CGS-CIMB Research and SAC Capital are keeping their &ldquo add&rdquo and &ldquo buy&rdquo calls on Hyphens Pharma as they view the company&rsquo 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&rsquo s medical aesthetics business. 

 

In FY2022, Ardence generated sales of $2.8 million and net profit of $817,000 as per Hyphens Pharma&rsquo 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&rsquo s stake increase from 42% to 65% for a consideration of about $1.9 million &mdash 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&rsquo s superior net profit margin of 29.4% to Hyphen Pharma&rsquo 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. 

Hyphens Pharma has entered into two sale and purchase agreements (SPAs) with IREG Solution and Lee Pak Hsiung, to acquire the remaining 58% of the share capital of Ardence Pharma, according to a release dated Oct 17. 

 

At present, the Singaporean speciality pharmaceutical and consumer healthcare group has a 42% stake in Ardence Pharma after it completed its acquisition of Novem Sciences on Dec 3, 2021. At the time, Novem Sciences had a 42% stake in Ardence Pharma.

 

Following the proposed acquisition, Ardence Pharma will become a wholly-owned subsidiary of Hyphens Pharma.

 

Under the proposed terms of the SPAs, the sale and purchase of the 58% stake, comprising 116,000 shares, will be completed in three tranches. 

 

The first tranche representing 23% of the share capital of Ardence Pharma for a total consideration of RM6,422,634.32 ($1.86 million) is to be completed by the third business day following the date of the SPAs. 

 

The second tranche of 34,000 sale shares representing 17% of the share capital of Ardence Pharma is to be completed on the tenth business day following the expiry of 45 days from the issuance of the audited accounts of Ardence Pharma for the financial year ending Dec 31, 2024. 

 

The final and third tranche of 36,000 shares representing 18% of share capital of Ardence Pharma is to be completed on the tenth business day following the expiry of 45 days from the issuance of the audited accounts of Ardence Pharma for FY2025, or where deferred by IREG in exercise of its rights in the event that the ebitda for FY2025 is lower than the ebitda for FY2024, the audited accounts of Ardence Pharma for FY2026.

 

Following the completion of the first tranche, the group&rsquo s stake in Ardence Pharma will be increased to 65% from 42%.

 

According to the group, this proposed acquisition presents a strategic opportunity to acquire a portfolio of businesses with a good management team which is financially attractive from a revenue scale and earnings accretion perspective. 

It will also provide access to new brand principals, products and customers that will enhance and enlarge the group&rsquo s revenue and profit, as well as strengthen its presence in the Malaysia market. The group says that this will   accelerate its growth in the medical aesthetics sector.  

 

Lim See Wah, executive chairman and CEO of Hyphens Pharma, says: &ldquo With the proposed acquisition, Ardence Pharma will become a wholly-owned subsidiary of the group and will help to grow our revenue and profit while strengthening our presence in Malaysia. More importantly, it will help to boost and grow our medical aesthetics business with its regional expansion plans and robust pipeline of quality clinically-proven aesthetic products. Continuing to invest and growing our medical aesthetics business will help bolster our leadership position in skin health for Southeast Asia.&rdquo  

Hyphens Pharma International&rsquo s 1J5 0.00% subsidiary DocMed Technology has formed a 51:49 joint venture (JV) with the equity owners of Hoang Duc Pharmaceutical & Medical Supplies, a pharmaceutical distribution company in Vietnam, to develop a B2B virtual medical hypermart for pharmaceutical supplies in Vietnam.

 

The Vietnam Hypermart is envisaged to help digitalise Vietnam&rsquo s pharmaceutical supply chain and level it up in terms of industry best practices, as well as to promote efficiency and transparency in the supply of authentic pharmaceutical drugs, OTC pharmaceutical products, medical devices and consumables.

 

The Vietnam Hypermart platform is an extension of POM, DocMed&rsquo s Virtual Medical Hypermart in Singapore. POM is currently one of the largest B2B medical procurement platforms in Singapore, having achieved more than $30 million in transactions and 500,000 log-ins for 2022.

 

Targeting some 35,000 potential B2B customers in Hoang Duc&rsquo s Vietnam distribution network, comprising hospitals, clinics, independent and chain pharmacies, and other retail outlets, the Vietnam Hypermart will have various digital tools that can be used by its customers to streamline their supply chain, and for local pharmaceutical companies to enhance the distribution of their products, and in doing so, help to promote a more orderly market.

 

The Vietnam Hypermart will leverage on Hoang Duc&rsquo s existing distribution channels and DocMed&rsquo s leading technology capabilities and experience in Healthtech/Pharmtech and the distribution of pharmaceutical products in Singapore.

 

With DocMed&rsquo s assistance, Vietnam Hypermart strives to raise the awareness of the authenticity of pharmaceutical products amongst its customers and could also potentially introduce the e-pharmacy concept to Vietnam.