PETALING JAYA: The extension by the Health Ministry of pharmaceutical outfit Duopharma Biotech Bhd

’s supply agreement by six months from January 2027 to June 2027 bumps up earnings visibility through to the first half of 2027 (1H27).

Analysts covering the stock remained positive on its outlook following Duopharma’s announcement last Friday that the government has extended the approved products purchase list (APPL) by six months to June 2027, albeit reducing the number of product types supplied to 97 from 100.

While the government’s APPL extension was expected, CIMB Research sees the six-month extension versus a prolonged extension (the current contract signed in April 2024 runs to end-2026) as providing more flexibility to navigate currency volatility and rising active pharmaceutical (API) ingredient prices.

“A prolonged extension could pressure Duopharma’s margins if raw material costs remain elevated and the ringgit weakens against the US dollar,” it said, noting that prior to the April 2024 contract, another agreement commencing from December 2017 was extended four times between November 2019 and April 2024.

“The contract extension provides longer-term earnings visibility, though the pricing structure will remain unchanged from the terms agreed in Apr 2024,” the brokerage said.

Products under the APPL account for 22% of the company’s annual revenue.

The stronger ringgit could provide some relief to rising API costs while the company can cushion the impact on margins by passing on costs to private sector clients due to greater pricing flexibility, which would be more difficult to do with the public sector.

“We make no changes to our earnings forecasts, as we do not expect the extension period to be prolonged to the same extent as during the November 2019 to April 2024 period,” it said.

CIMB Research has maintained a “buy” recommendation on the stock with an unchanged target price (TP) of RM1.83.

TA Research, which has also maintained a “buy” recommendation on the stock with a TP of RM1.69, said the contract extension provides earnings visibility through 1H27.

It sees minimal impact from the reduction in the number of product types supplied under the new contract.