BDM Q3'23 Report: Revenue Decline and Increased Operating Expenses Raise Concern

Last recommendation BDM:

BUY with target price 6,7 PLN/share (2023/09/13) LINK

Decrease in revenue with increased cost dynamics – negative BCG segment In line with our expectations, sales of the Onko BCG vaccine declined significantly in Q3'23. However, we expect outstanding contract deliveries to be made by the end of the year, as indicated by increased inventory levels. The largest of these are deliveries to the National Health Service (52,000 ampoules in H2'23) and Ukraine (650,000 ampoules). Onko BCG sales amounted to PLN 2.4m, a level similar to Q1'23 (in line with forecasts). Traditional segment Sales of other medicines were in line with our expectations.

The decline in Distreptaza revenue in our view is due to a strong Q2'23 - historically a strong quarter was followed by a decline in sales. In Q3'23, supplies of Lakcid were still on hold due to ongoing negotiations for a new contract with Polpharma. We expect these to be completed by the end of the year and regular sales to return. The gross margin on sales surprised us positively, but the rest of the report extinguishes the optimism. The biggest negative surprise was an increase in general and administrative expenses (+56% y/y), which amounted to PLN 5.4m vs. our PLN 4.1m forecast. In line with our expectations, other operating expenses increased by PLN 1.0m relative to the previous two quarters. In our view, this is a result of maintaining a reduced production of probiotic with no sales.

This led to an operating loss of PLN -2.9m and a net loss of PLN -2.4m. BDM's comment: We view Q3'23 results negatively. A very strong decline in revenues combined with increased dynamics of operating expenses translated into an operating and net loss. According to the company's report, the remaining deliveries that were scheduled for H2'23 should be completed by the end of the year, so we expect much better results in Q4'23. A threat to the annual forecasts included in the last recommendation is the increase in operating expenses. If their level continues in the next period, it is possible that the company will not deliver the expected results.

 

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