Mega Lifesciences Public Company Limited (MEGA) Earnings Call Transcript & Summary

Good afternoon, and a warm welcome to everyone on behalf of Mega Lifesciences for today's earnings call. For today's session, we have with us our CEO, Mr. Vivek Dhawan; CFO, Mr. Thomas Abraham; Deputy CFO, Mr. Manoj Gurbuxani; Finance Director and Corporate Secretary, Ms. Sujintana; and myself, Francis Rego. For today's session, we'll have three steps. We'll start with the finance overview first, showing a synopsis of the financial performance for 1H '26 and 2Q '26, which will then be followed by guidance and overview from the CEO, and then we'll open the forum for Q&A. Before we move forward with the financial performance, I would like to mention a note which we had also shared with you during the Quarter 1 2026 call. This is about the implementation of the Thai accounting standard. So with the adoption of the Thai Accounting Standard 21, the effects of changes in foreign exchange rates, which we had adopted in 2026, the group has adopted this standard and, accordingly, a market-based exchange rate for the Myanmar kyat against foreign currencies. The implementation of TAS 21 has no material impact on the net profit for 1H '26. Accordingly, the 1H '25 and 2Q '25 financial statements have been restated, including the statement of profit and loss, balance sheet, and other comparative financial information. This has been done in order to ensure a meaningful comparison with 1H '26 and 1Q '26, and it has no impact on the overall profitability, and it is only for providing a meaningful analysis. So moving forward with 1H '26 performance, driven by the strong double-digit growth in both Mega We care and Maxxcare businesses, which was supported by the continued improvement in operating conditions in Myanmar, the overall operating revenue in 1H '26 was THB 6.9 billion, which reflected a growth of 12.5% Y-o-Y. The brand business revenue in 1H '26 was THB 4.6 billion, reflecting a growth of 11.9% on Y-o-Y basis. This was underpinned by continued strength of the product portfolio and sustained demand across key markets. The distribution business revenue in 1H '26 was THB 2.07 billion, reflecting a growth of 11.3% on Y-o-Y basis. The growth in revenue reflecting continued improvement in operating conditions in Myanmar. On the geographical front, Southeast Asia continues to be dominant and has 73% share of the Mega We care business revenue. And during 1H '26, it posted a very strong steady growth. Africa and Latin, and the rest of the world continue to show strong double-digit growth during 1H '26. On gross profits, the overall gross profits in 1H '26 improved to 52% of operating revenue as compared to 50.5% of operating revenue in 1H '25, primarily driven by improved margins in both businesses. The branded business gross margins remained healthy and improved to 65.3% in 1H '26 as against 63.7% in 1H '25. The gross margins of Mega We care business, as we always mentioned, are influenced by revenue growth, product mix, country mix, currency mix, and level of output amongst other factors. The distribution business gross margins improved to 23.9% of the operating revenue in 1H '26 as against 22.4% of the operating revenue in 1H '25. Gross margins of distribution business are influenced by principal mix amongst several other factors. On the SG&A side, SG&A expenses were THB 2.3 billion, reflecting an increase of 11.1% on Y-o-Y basis. The increase in SG&A is in line with planned spending and aligned with the overall business growth and strategy. SG&A expenses as a percentage of operating revenue decreased slightly from 33.4% in 1H '25 to 33% in 1H '26. EBITDA in 1H '26 came in at THB 1.6 billion as against THB 1.2 billion in 1H '25, an increase of 33.8% Y-o-Y due to the strong growth in both Mega We care and Maxxcare businesses in 1H '26 and supported by gross margin expansion. The reported net profits in 1H '26 were THB 1.1 billion as against THB 841 million in 1H '25. Reported net profits increased by 33.1% for reasons explained above. Operating cash flow for 1H '26 was THB 848 million, which represented 76% of reported net profit with a lower cash conversion compared to earlier periods, primarily reflecting a planned increase in inventory levels to support anticipated demand in the upcoming quarters. In 1H '26, THB 254 million was invested in tangible assets, mainly driven by spending towards manufacturing plants in Indonesia, Vietnam, Thailand, and Australia and towards the acquisition of 100% stake in the JV company with the objective of acquiring land in Myanmar or building manufacturing facilities in Myanmar. Moving forward to 2Q '26 performance. Driven by high single-digit growth in Mega We care business and continued improvement in the operating conditions of Myanmar, it resulted in double-digit growth in Maxxcare business. Overall revenue in 2Q '26 was at THB 3.5 billion, which reflected a growth of 10.7% Y-o-Y. Brands business revenue in 2Q '26 was THB 2.3 billion, reflecting a growth of 7.7% on a Y-o-Y basis, again, underpinned by continued strength of the strong product portfolio and sustained demand across key markets. Distribution business revenue in 2Q '26 was at THB 1.07 billion, posting a growth of 14.8% on a Y-o-Y basis, again, reflecting continued improvement in the operating conditions in Myanmar. Overall gross profits in 2Q '26 improved to 51.7% of operating revenue as compared to 49.7% of operating revenue in 2Q '25, primarily driven by improved margins in both businesses. The branded business gross margins remained healthy and improved to 64.4% in 2Q '26 as against 62.5% in 2Q '25. The gross margins of Mega We care business are influenced by revenue growth, product mix, country mix, and level of output amongst other factors. The Distribution business gross margins improved to 25.8% in 2Q '26 as against 21.4% in 2Q '25. The gross margins of distribution business are influenced by principal mix amongst other factors. SG&A expenses were about THB 1.23 billion, an increase of 15.6% on a Y-o-Y basis, reflecting planned higher spending to support continued growth of business. As a percentage of operating revenue, SG&A expenses increased to 35% in 2Q '26 against 33.5% in 2Q '25, reflecting the timing of SG&A spending, which is always not incurred evenly across different quarters. SG&A expenses are expected to resume back to normal levels on the full year basis and should taper down to around 32% to 33% of operating revenue on a full year basis. EBITDA in 2Q '26 came in at THB 745 million as against THB 593 million in 2Q '25, an increase of 25.5% Y-o-Y due to strong growth in both Mega We care and Maxxcare businesses, supported by gross margin expansion. The reported net profits in 2Q '26 were THB 515 million as against THB 391 million in 2Q '25. The reported net profit increased by 31.6% Y-o-Y due to reasons explained earlier. To summarize, with strong double-digit growth in both Mega We care and Maxxcare segments and margin expansion across both segments, the EBITDA and net profit has grown in strong double digits, which is as per guidance. And as always, our balance sheet continues to remain a net cash balance sheet. May I now request our CEO, Mr. Vivek Dhawan, to share his remarks and guidance for 2026.

Thank you, Francis. [Foreign Language] everybody. [Foreign Language] I think Francis has given you a fair run of what's happened in the first half and the last quarter. You've seen brands growing at a rate of 11.9% on a year-to-year basis. And distribution also has picked up; largely, distribution is Myanmar, and there has been growth with the availability of stocks, et cetera, depending on the conditions. So distribution has also been seeing an uptick, at least not only in Myanmar but other countries as well. Going forward, if you look at the future, we still see a healthy growth in our branded business as we have presented, and it should continue from the low double-digit growth in the branded business. We expect that to carry on. With the existing products largely in hand, we have launched in the first half some [ nine ] unique products, as we say new unique, not the same line extensions. And we have a further plan to launch some unique products in the remaining period of '26. Though the new products don't make up a very large part of our business, but they will create future opportunities going forward in the next few years to come. We have 80 products in pipeline, unique products, which we hope to launch over the next few years to come. Already launched in the past year, we have launched some 80 new products in the last four years. So going forward, we have a new pipeline of over 100 products under development. So that's been our strategy in the drug area, in the categories that we are involved in. We have a good pipeline to carry forward and build on the categories we are present in. And in the over-the-counter or in the supplement business, as we call Consumer Health business, we are expanding and growing the existing categories we are already present in. So both these activities in the countries where we are present. Today, we are -- Southeast Asia is still the largest part of our business. And Africa and Latin America are doing well; they have started to grow at much faster rates. We have presence in Africa and the larger markets. As you would know, Nigeria, Ghana, Tanzania, Uganda, Kenya, Ethiopia, so they are the big ones. The other ones are small, so they constitute largely the main parts of the African business. And then we have Peru, Colombia that are also growing reasonably well. We continue to do business in Ukraine and Uzbekistan as well. Uzbekistan is new, and we are developing that market for the future. Southeast Asia is every market where we are present in all of them directly, except Singapore and Brunei and Laos. And the rest, we are also progressing very well with our plans. Our manufacturing plants, as you have been informed earlier, is Indonesia, where we have a plan to get to $50 million by 2030 is progressing well, both local manufacturing and imported product that we are bringing in to then later move to local manufacturing. So both these activities are ongoing. The plant expansion is nearly complete. We hope to start the warehouse next month and the plant should be ready to go in the first quarter next year. So that's the Indonesian plant. Vietnam, the plant building has started. Work has begun and we hope to complete on time, projected plant completion is 15 months plus rest of the other things that GMP approval product, which is at given time frame. It's a 3-year project, so it will take approximately 3 years' time before we see commercial production happening. Meanwhile, in Myanmar, we have signed the agreement, the land deal sign, et cetera, has been done. Design is done is in progress, and we hope also to begin construction in the next 3 months' time. We are planning that we should begin in 3 months' time. So everything else is on track. Manufacturing in Myanmar, Vietnam. Australia plant is progressing very well, and we continue to deliver for our brands from Australia and will supply the local market. So that's the manufacturing side, product development side, and the countries that we are present in. Looking at all these activities that are going on. We are on track to deliver as we have confirmed, explained to you our strategy in the last quarter that we plan to double our branded business over the next 5 years by 2030. We are still on track to do so, and we are working in that direction to make sure that happens. Overall, our business today, largely, I think that when you say complementary medicine, supplement nutraceuticals, our Consumer Health business is about 50%. You add over-the-counter self-medication, it probably becomes a bit about 65%. The remaining 30% to 40% is pure prescription Rx prescription or pharmaceutical health care as Mega we define as pharmaceutical products. So that's the ratio we are in, it will probably remain around that 50-50 in that range going forward. So that's our branded business model and distribution is largely 3 countries, Myanmar, Cambodia, and Vietnam. Cambodia still has continued problems as we have, but I think the decline has now stabilized and whatever had to come down has come down from the Thai product side because we also have a large [ native ] product, we are not only made in Thailand. So we will continue to do business there, and I believe in the future, things will look better in Cambodia. But that's a situation everybody knows, and it's not beyond our control. That's the Cambodia situation. Other than that, I do not see any other serious issues to talk about at the moment. We remain confident that we'll deliver our results for 2026. Now I would request if we can take questions and answer questions if there's nothing else. So if you have questions as you say, please tell us your organization and we'll try and answer all your questions as well as we can in the next 20, 30 minutes that we have. Thank you. Over to you.

I have 2 questions. The first one is about the gross margin in 2027. Since Khun Vivek mentioned that the new facility in Indonesia will be completed in the first quarter of next year, and it should take some time to ramp up the utilization of the new facility. And my question is like how much impact should we expect in terms of the negative impact on the gross margin for the branded business in 2027. So that's my first question. Yes.

Impact on gross margins with the new facilities coming up because they will be underutilized for some time. And that's going to be true for all our new facilities because in the pharma business, you do have what we call a time to get approval, GMP product registration, they take time and the full utilization takes anywhere between after approval to 2 to 3 years they may become -- and operationally, because we are buying the same product from outside, there's no change in operational margin. But depreciation will be there. That will be number one and there will be some preoperative cost that we have to incur over the period while the production is more. But looking at the growth overall that we have from the branded business also all of it is being produced there locally, right? So growth in the branded business should take care of the additional operational expenses and still achieve that profitability that we have presented. So we do not see the bottom line getting impacted, but depreciation definitely with these 3 sites coming in. So you get 2 years of preoperating expenses, right, from the time you -- the plant gets ready and you get 2 years by the time before you start registration, development batches, GMP approvals, and you get your first launch. So that's when the actual production starts. So first 2, 3 years will be preoperating expenses that get amortized. Sorry...

Yes. And generally, we have been guiding gross margin in the range of 63% to 65% in that range. We should be remaining in that range in spite of Indonesian facility getting operational next year.

Okay. That's clear. And my second question is regarding the quarterly trend of the SG&A expenses. Since in Q2, you mentioned that the jump in SG&A was largely due to the timing of the spending. Can I expect the SG&A to drop significantly Q-on-Q in Q3 before rising Q-on-Q in Q4 due to seasonal factors?

I think the SG&A is related to a business and sometimes if you have advertisements and things going on. Some of this is prepaid or done like that. But I think overall, our SG&A is growing in line with our growth in the business, right? So SG&A, sales team, sales cost, promotion expenses, all these are in line with the sales growth. It's not very far away with growth in sales.

I think quarter-to-quarter might not always reflect a clear indication. I think on a full year basis, as we have mentioned a little while earlier, we should be looking at around 32% to 33% of operating revenue as the SG&A for the full year. Some quarters could be higher.

At that rate, Khun Wasu, the SG&A growth will be marginally lower than the revenue growth on a full year basis. So that's what we're expecting the second half and the full year to look like.

Okay. I want to make sure I heard you correctly, Khun Manoj. You are saying that for the full year basis, SG&A should be growing at a slower pace than revenue?

Yes. So if the SG&A is at the rate of 32% to 33%, the growth in the SG&A expense on a Y-o-Y basis will be marginally lower than the growth in the revenue. That's right. [ Khun Sithapong ] May we request you can ask your questions, please.

I am [ Sithapong from Kasikorn. ] So I would like to ask about Mega We care. As the Southeast Asia still account about around 70% of the Mega We care revenue in the first half, but it still grow about 5% for the restate. So the other remaining -- the incremental revenue will come from the other markets. So my question is that for the Mega We care to sustain the double-digit growth in the second half of this year. So what needs to reaccelerate in the Southeast Asia? And could you quantify the expected range in the key countries and the product by the region?

I think if you take away Cambodia, the Southeast Asia growth is in the range of 8%, 7.8% high single digits. So it's not very far away, 8%, then we are talking about higher single digit -- low single double-digit growth. Africa, Latin America, some other countries are growing faster, and we will see a little bit more growth in Southeast Asia as well in the second half. As many regions in Southeast Asia in the beginning, you have holidays, you have a lot of other impact in Southeast Asia, which doesn't happen in the second half. And second half, if you see historically also you got 55%, 45%. So there's a little bit more business in the second half in most years. So we should see a little bit improvement in Southeast Asia as well. Plus the other markets continue -- they continue to grow, we should be able to deliver that low double-digit growth in the second half.