KGI Securities has upgraded its call on Catalist-listed Hyphens Pharma from "neutral" to "outperform" with a higher target price of S$0.43 compared to S$0.36 previously, upon rolling forward estimates to base its valuation off FY2022 forecasts.

In a Monday report, KGI analysts said they see potential upside for the stock's base case price-to-earnings (P/E) ratio of 17 times, as its mature competitors are maintaining a P/E average and forward P/E average of 19.9 times and 25.5 times, respectively.

While Hyphens' FY2020 results fell short of expectations, KGI's analysts are positive on the group's strong turnaround in Q1 FY2021, which saw a 7.5 per cent year-on-year increase in revenue due to a pickup in the group's Vietnam segment.

This led to the group delivering its highest-ever quarterly sales for the period with its profit margin hitting 6.3 per cent.

"However, for H2 FY2021, we might not see the results of H1 FY2021 being replicated as Covid-19 cases started surging in the end May 2021. Hyphens may also face operational difficulty in H2 FY2021/H1 FY2022 as their inventory in Vietnam runs low and distribution agreement renewals continue to be delayed," they cautioned.

The analysts nonetheless continue to like Hyphens for its growing portfolio of high-margin proprietary brands, along with its subsidiary's recent e-pharmacy licence to provide telemedicine services as well as partnerships with online business-to-consumer (B2C) platforms for the sale of its proprietary products.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

With continued expansion of the group's medical hypermart and digital business this year, coupled with the rising trend in telehealth services, KGI is expecting these segments to contribute to the group's topline growth going forward.

The analysts also highlight e-commerce as a growing trend which they believe will support consistent income generation from the B2C online sales segment.

"Hyphens proprietary brands segment saw 26 per cent growth from FY2019 to FY2020, representing the most significant jump over the last four years," they noted.

"The Ocean Health brand did remarkably well under the influence of the Covid-19 pandemic as consumers purchased a higher volume of vitamins than usual for immunity purposes… We foresee a continuity of this trend in the short and mid-term, considering that the pandemic is evolving into an endemic and hence a continued demand for supplements."

Shares of Hyphens Pharma closed up two Singapore cents or 6.35 per cent at 33.5 cents on Monday.