AFT Pharmaceuticals - H123 focused on portfolio expansion

AFT reported strong post COVID-19 revenue momentum in H123 (NZ$65.8m, 18.4% y-o-y growth), driven by robust organic growth across all regions, supported by new product launches. Sales uptake was boosted by robust demand from both domestic (23.5% growth in Australia, 34.7% in New Zealand) and Asian markets (26.1% growth). However, profits were weighed down (operating margin of 5.3% vs 9.9% in H122) by the delay in the anticipated licensing income from Hikma (c US$6m) and materially higher SG&A expenses related to new product launches. AFT expects FY23 revenue growth to be skewed towards H223 due to additional product launches, although margin pressures may carry over, as evidenced by a downward revision in FY23 operating profit guidance to NZ$18–23m (previously NZ$27–32m). Incorporating these developments, our valuation falls from NZ$681m or NZ$6.50/share to NZ$665m or NZ$6.34/share.