PETALING JAYA: Kotra Industries Bhd
could see its short-term core profit fall in tandem with slower revenue growth due to weak demand for over-the-counter (OTC) supplements post-pandemic, says CGS-CIMB Research.
With local OTC supplement sales falling back to pre-Covid-19 levels, the research firm said it has cut its core net profit forecast for Kotra by 15.7% in the forecast financial year ending June 30, 2024 (FY24) and 19.2% in FY25 on lower local revenue growth.
“We expect core profit to fall 12% in forecast FY24 before rising 2% in forecast FY25 and 10% in FY26.
“We expect local pharmaceutical product revenue to rise 3% per annum in FY24-FY26, on the back of rising private healthcare expenditure,” said CGS-CIMB Research.
On the export side, its management intends to focus on existing export markets, particularly Indonesia, Myanmar, Vietnam, Cambodia and Africa.
“We think that its manufacturing capacity allows Kotra to participate in overseas tender bids to supply pharmaceutical products to the public sector, which could result in export revenue rising 6% to 8% in FY24-FY26.”
According to the research firm, long-term return on equity (ROE) will hold steady at around 18% in forecast FY25-FY26 due to better economies of scale.
It noted that Kotra’s ROE has been steadily climbing since the 2011 completion of its new Kotra Pharma Technology Centre plant, which has a sizeable manufacturing capacity.
“We believe its ROE should settle around 18% in FY26 (from the Covid-19-boosted 24% in FY23), supported by increased economies of scale as Kotra has committed to a capital expenditure (capex) of up to RM160mil since FY23,” it added.
This capex is to go towards the construction of a new automatic warehousing facility, and the setting up of three new manufacturing lines.
Kotra expects the new warehouse to be completed by end-2024 to replace its current one, which has reached more than 90% of its capacity since its establishment in 1997. To fund capex and pay off debt, Kotra had previously paused dividends.
