Mega Lifesciences Public Company Limited ($MEGA)

Hello, good afternoon, everyone. A warm welcome to everyone to the first quarter 2026 earnings call of Mega Lifesciences. We'll start with the introduction. We have our CEO, Mr. Vivek Dhawan with us.

Afternoon. Vivek Dhawan here.

Our CFO, Mr. Thomas Abraham.

Hello.

Senior Vice President, Finance, my colleague, Francis Rego.

Hello, good afternoon.

Sujintana Boonworapat, Finance Head and Company Secretary and myself, Manoj Gurbuxani. So the agenda for today, the way we will progress on this call is we will start with the synopsis of financial performance for the first quarter 2026. And this will be followed by remarks by our CEO on the first quarter financial performance and the future outlook of the company. And thereafter, we'll open the forum for Q&A. We would request everyone as they raise their questions, as they raise their questions, they let know their name and the company they represent. So going by the agenda, first on the synopsis of the financial performance for first quarter 2026. But before I get into the -- explaining the first quarter 2026 financial performance, we would like to highlight that -- we have adopted the revision to the International Financial Reporting Standards, which allows companies to apply market rate of exchange rates against foreign currencies for markets where there's a gap between the official rate of exchange -- official rate of exchange and the market rate of exchange. So Myanmar was a market where we had this gap. And if you would have followed us in the past, you would have observed, we had to normalize the profit and loss line items for dual currency, which is no longer required from this financial year. The impact of this adoption on the net profits is immaterial and rather this adoption has resulted in a line-by-line representation of business, the way it is conducted in the market. So it's a welcome change. So accordingly, as this is adopted in first quarter 2026, what we have done is the first quarter 2025 financial statements, including Statement of Profit or Loss account, Balance Sheet and the other comparable financial information has been restated in the MD&A across relevant line items based on best estimates. This restatement has no impact on the overall profitability of the company and is intended to enable a meaningful comparison with first quarter 2026. So we thought that we'll start with this note to explain you that the market rate of exchanges have been adopted in our financial statements with a comparable restatement of first quarter 2025. Now explaining you in detail the financial performance of first quarter 2026. So driven by the strong double-digit growth in Mega We Care business and the Distribution business also growing at high-single digits, supported by continued improvement in the situation in Myanmar, our overall revenue for first quarter 2026 has been at THB 3.4 billion, which has grown by 14.4%. Going by segmentation, the branded business revenue for first quarter 2026 has been at THB 2.3 billion, reflecting a growth of 16.5% Y-o-Y, underpinned by continued strength in the portfolio of products and sustained demand across key markets. The distribution business, which has seen a positive momentum from third quarter of last year, particularly because of the improvement in situation in Myanmar has -- in first quarter 2026 had a revenue of close to THB 1 billion, which has grown at 7.8% Y-o-Y basis. And this growth is reflected due to continuous improvement of the operating conditions in Myanmar. The overall gross profits for first quarter 2026 improved to 52.3% of the operating revenue as compared to 51.4% of the operating revenue in the last year, mainly due to favorable change because of the segmental mix because branded business is growing at a much faster rate than distribution business and branded business earns a gross margin of close to 65%, 66%, which has a favorable impact on the gross margins when we look in a blended form. The branded business gross margins have remained healthy and strong at 66.1% in first quarter 2026 as against 65% last year. The gross margins of branded business are influenced by revenue growth, product mix, country mix, currency mix, and level of output, among other factors. But in first quarter 2026, the branded business gross margins have remained strong and comparable to other branded business gross margins, what we have done in the past as well. The Distribution business gross margins are at close to 22% of the operating revenue for first quarter 2026, similar to 23% of the operating revenue in first quarter 2025. The gross margins of distribution business are influenced by principal mix, but they continue to remain strong. SG&A expenses were close to THB 1,050 million, increased by 6.2% Y-o-Y, in line with the planned spending and aligned to the business growth. Notably, if you see that the SG&A expenses as a percentage to operating revenue has decreased from 33% in first quarter '25 to 31% in first quarter '26, reflecting improved operating leverage from higher revenue growth. EBITDA for first quarter 2026 came in at THB 869 million as against THB 613 million last year, which reflected a growth of close to 42%, which is due to the strong double-digit growth of Mega We Care business and high single-digit growth rate of Maxxcare business, which has resulted in gross margin expansion from favorable business mix and operating leverage from SG&A. Reported net profits came in at THB 605 million and adjusted net profits came in at THB 565 million, both growing at 34% and 16% growth due to similar reasons as I explained for EBITDA. Operating cash flows for first quarter 2026 were healthy and strong at THB 686 million, representing 113% of net profits. We continue to remain a net cash company with a strong balance sheet. In first quarter 2026, we invested THB 124 million in tangible assets mainly driven by spending towards manufacturing plants in Thailand, Indonesia, Australia, and Vietnam and also towards 100% stake acquisition in the joint venture company with the objective of acquiring land in Myanmar to build manufacturing facilities. So this is in synopsis first quarter 2026 financial performance. Thank you very much for your participation. I would request our CEO to share his insights on the performance as well as future outlook. Thank you.

Thanks, Manoj. Thank you, everybody, for coming on the call. As you have learned from Manoj, I think we have had a reasonably good quarter. Our brand business has grown 16.5%, distribution grown 0.8%. Distribution largely driven by Myanmar, things are a bit better. And I think going forward, if the stock situation in port continues, we should be seeing something similar over the year, I think in that higher single-digit growth in distribution. In spite of some of those troubles we have in Cambodia and all. We still believe a lot of our products come from outside, not only from Thailand and all that put together. Distribution business in all the 3 markets should deliver that 8% to 10% in that range growth in the year 2026. And the brand business, though we have been claiming or we've been giving our guidance of between high-single digits, and that's our plan. The first quarter has been good. And I think looking at it, we should be able to deliver that 8% to 12% growth for the year 2026 should be very, very likely that will happen. Momentum is good. The new products that we are launching, many of them are coming in -- some are very interesting new areas we are hoping to start very early in the categories we are in. And even existing products where we are investing money and time over the years are trying to show some results. So with all that put together, Consumer Health, over-the-counter drugs and pure pharmaceuticals are all seeing growth. Africa is also doing well. A lot of the areas that you had seen a few years ago, we had trouble. Nigeria has taken a good turn. I think many of our African markets, Ghana is another one that's also doing well. All the rest, our branded business in all these markets are performing well. So we have good hope. Even Latin America, with Colombia and Peru have both shown good results, and we are also hoping to see them progress towards this -- our plan to become a $500 million company in the next 5 years by 2030. Our branded business. So I think we are on track what we have set -- the strategy we had explained to you in the early period that building our branded business from where we were at $320 million to $500 -- plus $500 million and grow our bottom line from that -- we ended at THB 1,900 million, we are looking at THB 3.5 billion, approximately plus if things go well. But that's the estimate we had given you. I think we are in -- still on track, and we are tracking our business in all these countries and investing in the brand building that we are doing. In terms of product launches, we are focusing on launches that matter, especially in the categories we are in. So we are getting more focused. We are in Neurology, Ortho, Derma, Respiratory is a new area we are getting into in the drug area. So I think very focused on certain categories with more products in pipeline aligned with the teams that we have in the country and bringing in new product pipeline, that's in the pharma side. On the consumer health side, we have pain area. We have cold, cough area, EUGICA, Gofen. So we have a pipeline coming in that area, a lot of areas related to Gofen, Gofen syrup, DOFLAM, a lot of other products that we are getting into allergy, gut health, we have a lot of products in the gut area with AVARIN, GOGAZ. So that whole category management and developing those categories is where we are building our strengths in most markets, whereas the consumer health, the other part of our supplement, herbal medicine, vitamin business focused on NAT B range, liver health. There are certain areas we are very focused, building future growth areas coming out of the countries we are present in. Largely, we are present in Southeast Asia, Sub-Saharan Africa, Latin America. Then we have our 2 outliers, which we call again, Ukraine and Uzbekistan. Uzbekistan also, we are working. Our pipeline is just getting ready and all our supplement and what we call consumer health areas, we are getting registration. So we should see growth coming there. Ukraine continues to perform. We don't expect to grow at a very fast rate, but we are still doing well in Ukraine. I think going forward, we are still looking at growing our business in the next 5 years. So there's nothing -- no real concern in that area as well. So altogether, the direction for brand building in the markets where we are remains #1. Distribution in 3 countries. We continue to build, develop the partners we have and add on partners that actually fit into our growth plan. So that is also in progress. To support all this, we are -- as you know, we have a CapEx plan of about, I think, THB 2.6 billion to be spent over the next 3 years, 2006, '07 and '08. That includes -- the Vietnam site has already started. The work is going on. It's progressing well on time. The Indonesian site, the warehouse should be operational in August. We are hoping to complete the new section that we had built extension of the plant because it's Plant 1, but the new section should be ready by the fourth quarter with all the licensing audits, et cetera, which should be easier because the same plant ready to operate by third quarter, early next year. So that is also going on. Work is progressing well and a lot of new products already development filing has started from the existing plant that we are doing local development and registration of new product that we can import. So all this pipeline is being worked on. We are on track to deliver that $50 million that we have planned. It's a tough task, but we are already reaching somewhere to our -- not midway 1/3 mark. So I think that's where our plan in this year. And with products coming in, we should accelerate that growth over the next 2, 3 years as we will see. So Indonesia is work in progress, but a lot of things are moving in the right direction. Vietnam, already I mentioned to you, plant is being built. Other things are going on. Myanmar. We are in the final stages of getting all the licenses. And the remaining work, design, civil contractors, all this is being finalized. So -- but looking at the regulatory requirements, approval will take about 3 to 4 months, 3 months approximately to begin construction. We already have piling and all that done. So that's one early start, but it's going to take 3 months before we start. So all that work is in progress. So we are on track, I would say, both on the development product -- new product pipeline, both in Pharma and Consumer countries, every country, we are quite on target on hitting both our consumer health and pharmaceutical health care to both the categories and building our brand. So with that, I think there's nothing more than this that I can offer at the moment. I would be happy to answer questions. I think that will be easier because there's nothing new, nothing more to add. Most of it has been already been shared and you have the MD&A, all the data with you. So shall we answer the question now? Would that be easier. I think. So growth target, yes, nothing changes. We are still confident. I'm sure all of you are worried about the war, you are worried about gas prices, fuel prices impact on cost. Yes, there will be an impact on cost. But if we are growing at 10%, 15% and if our branded business grows at that rate, even if we absorb that 1.5% of cost pressure or we -- in some cases, you also pass on some of the increases in consumer health, everybody passing on you also pass on. So I think the final impact may not be significant. And with growth rate, it will not be -- that all not be significant at all. If we can continue that 8%, 10%, 12% growth, you should see a serious improvement in the bottom line over the next 9 months. But while we continue -- I mean, we have orders, we have booked stocks, all this is there. So material, a lot of it is in hand. So there are certain areas where cost goes up, but some of it is also passed on the COGS and added to the Cost of Goods Sold. It doesn't have a final impact on our bottom line. So with that, I would -- I guess, we'll open up the floor to questions and try and answer most of them. What we cannot, we will get back to you -- so let's start from now any questions are there or yes, like every time, please let us know who you are and which institution you are from and ask a question. We'll start answering them now. Thank you.

Wasu, you can ask your question, please.

Congratulations on the strong first quarter results. I am Wasu from Maybank Securities Thailand. So I have 3 questions. Maybe we can go one by one. The first one is regarding gross margin. I heard that earlier in the year, you gave a margin guidance of 63% to 65% for the branded business and 23% to 24% for the distribution business. My questions are, why did the branded gross margin come in above guidance? And why did the distribution margin come in slightly below guidance?

Yes, you want to answer that? I think maybe the mix, right? So I think the distribution business is probably sometimes of the mix of the partners that -- what products we are carrying. Some are full agency, some are purely CDS. So if that quarter -- this quarter, largely [indiscernible] grew and some is CDS, then the margin mix probably went down a little bit lower. But generally, we also have agency business where we have a higher margin. So that could be one of the reasons that can happen. Consumer Health and if you talk about our branded business, plus 1% is significant, but not that significant. Sometimes if our high-margin products are -- have done better, have shown higher growth versus our a little bit lower because they don't have the same margin, some are 50%, some are 70%. Their sales went up, much higher than we were talking about 8% to 12%. Our guidance was based on 8%. But this time, it becomes 60%, much higher growth in branded business is also adding that extra point. This could be one and a little bit of the mix. Again, here also some have higher margin, some products a little bit higher. If the higher-margin product grow, then it can actually impact, a, higher margin product growth; b, you grow brand more than your actual numbers. So -- but okay, if all grow to -- all growth happened it still remain within. But I think the mix also in the branded business has had a little bit of an impact. Maybe some of our high-margin products have done a lot better. And the other lower-margin products have remained flatter probably in terms of -- if you look at the quarter, those have remained maybe flat. They have not grown at the same rate. So that's why probably you see this -- sorry, Manoj, carry on?

Overall, the branded margins have, in fact, gone up, Wasu. That's primarily happening because of the segmental mix because the branded business is growing at a double-digit growth rate, which has resulted in a better branded margin overall.

I think 63% to 65% is a broad range and for distribution, 22%, 23% is a broad range. But on a quarter-to-quarter basis, there will always be variations. On a full year basis, we will mostly be in that range.

We have been for many years [indiscernible]. EBIT growth because are we doing anything to make that happen, cost control. We are doing everything to control. I mean, Solar, Energy, everything [indiscernible] really multiplied. We have added more recently just come on board just now. Probably now, I don't remember, 22%, I don't know, normally spot on which of 18%. So we are -- all this we are doing to keep costs low, improving our efficiencies, outputs. So this is also at one end we are doing, but that's not the only reason probably the mix.

Okay. And my second question is regarding the distribution revenue trend. So the distribution revenue has been declining Q-on-Q for the past 2 quarters. When do you expect the distribution revenue to start rising Q-on-Q?

See, the distribution business is -- if you look at the fourth quarter, fourth quarter is generally a bigger quarter. So last year, we did on a normalized basis, close to THB 1.1 billion, we did THB 1 billion this year. So when you look at distribution business or any growth in revenue, you have to look more from a Y-o-Y basis. So Y-o-Y basis, distribution business has grown at 7.8% this year.

I think you're comparing with the third quarter of 2025, right? Which came on the back of 2 very low quarters, first quarter '25 and second quarter '25 were very slow due to import license issues that were there and which eased in the third quarter. So third quarter definitely had much higher revenue. Fourth quarter was more stabilization. And I think now we are probably back to more stable levels of revenue. So Q-on-Q may not be the right comparison.

Annualized basis will be better because licenses are not time. Annualized basis, we grow at 7%, 8% compared to last year. Then the business is growing. Distribution today because Burma is to have a very -- Myanmar is to have a very significant part of the overall distribution. Whereas Vietnam and Cambodia were growing. They're all growing, but the base is smaller, right? The overall impact was lower. And now Myanmar, it starts to grow from a lower rate, then you will see the change.

Okay. And my final question is about Indonesia. So when will the new production facility start producing? And also, can you share with us the revenue target for the country for this year and next year when the new facility should be up and running?

We don't share country-wide data, but the facility will be ready. It's not doing anything new. What is adding capacity and also building in a new production ability to produce softgel requirement? Because we are selling products in the country and we want to launch a few new products, which have to be made locally, cannot be imported in the country. So we are getting ready with some new projects for; a, expanding the ability to manufacture higher quantity because the old plant was a small plant and building it to get EU standard so that we can also use it to export to other markets, some of our products. So leveraging Indonesia for a local production, increasing capacity as we grow our business. So this is build we thinking about the next 5 years that we can deliver from this facility for the next 5 years our requirements for made in Indonesia product. That's the plan. So I think it's on line. We are growing this year also -- we compared to last year, our production, we grew nearly 30%. So even our growth in the country also with the product making tender and all the other stuff, it has also grown significantly. But we are on line with growth and $50 million is the number, but we are looking at every year grow this business. So far at the moment with the pipeline, we should see more improvement over the next 2 years, '27, '28 should be better years to look at. The products just are coming in, getting approval, new launches are being made. We have to register many new products in the country. And for registration, you have to develop locally, get through local bio study, then get approval and import registration have to be filed. So both are coming in. So we will see more products in the market in '27 and '28. Both locally made and imported. So...

Can I say that the new facility we will start producing in the first quarter of next year?

Yes, yes. It will start producing, sure. Producing will start, but I think that's not the major impact. We are building it for the reason. You have to add old plant, you have to build new get GMP, all approvals, EU, all of these stringent [indiscernible]. Second, you don't have -- it's a new dosage form, which is not in that facility. Number three, we need more storage. So warehousing was needed. So you have to build warehouse. Warehouse is a very important part of space as we are producing more. So there's a lot of other parts to it. Then we have all the new look at capacity. Same product tablet, hard-gel capsules, filling in blister, and filling in strip packers are all growing up. So we are ready to look after growth. We don't have to build a new -- any more facility to do the same types of products. It doesn't have injectable or other thing, that's new. But only to do this, this can handle our growth plan of that $50 million from this facility. That is what it is. We are ready...

And I think you mentioned earlier in the call that the warehouse in Indonesia should be completed in August.

Yes, yes. August, September, we are planning to start using the warehouse. We have warehouse, but it's not sufficient because now we produce more. Capacity is going up 20%, 30%. We are producing 20%, 30% more every year. So it requires storage more material, finished product. And then we use a distributor, we have to supply to them in Jakarta, we are in Bogor. So with all that put together, this facility will be -- warehouse will be available. I think until August, September, it should be ready to use. It's part of the same facility, yes.