HLIB maintains Buy on Pharmaniaga, raises target price

by **Cals** Tue 18 Mar 2014, 08:49

Business & Markets 2014

Written by theedgemalaysia.com

Tuesday, 18 March 2014 08:39

KUALA LUMPUR (March 18): Hong Leong IB Research (HLIB) has maintained its Buy rating on Pharmaniaga Holdings Bhd with a higher target price of RM5.30 (from RM5.19) and said it remains positive on the company’s business strategy and industry outlook, both domestically and regionally.
In a note Tuesday, the research house said tender outcome for drugs under the concession agreement has been postponed till mid FY14.
“Pharmaniaga expects this round of tender would be an exception with generally higher average selling price.
“This bodes well for its logistics and distribution division which earns a markup for their services,” said HLIB.
The research house said that with the absence of the novation agreement amortization (untill Jan 2014) coupled with higher efficiency, profit margin was expected to see a significant boost.
It said FY13 saw a full year provision impact amounted to about RM28.4 million (or 49.8% of PAT).
HLIB said Pharmaniaga was confident to turnaround the newly acquired Errita which suffered losses in FY12 and FY13.
It said the losses were mainly due to shutdown of production lines in order to give way for upgrades in compliance to GMP standard, adding that GMP was mandatory following Indonesia’s participation in PIC/S.
“Focus has now shifted to its JV in Kingdom of Saudi Arabia (KSA) with Modern to develop a greenfield manufacturing plant. Target to commercialize in 2017.
“Reiterate Buy with a higher fair value of RM5.30 (+2.1% from RM5.19) after rolling over our valuation to FY15, based on unchanged P/E multiple of 14.5x,” it said.