Pharmaniaga en route to expansion

by **Cals** Thu 26 Mar 2015, 12:59

Pharmaniaga en route to expansion

By HLIB Research / HLIB Research | March 26, 2015 : 10:43 AM MYT

[size=14]Pharmaniaga Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(March 25, RM6.16)
Maintain buy with target price of RM6.58: Pharmaniaga is in the process of obtaining halal and international organisation for standardisation (IOS) certification for three of its manufacturing plants. It also plans to attain theEuropean Union good manufacturing certification for its Bangi plant in Selangor and Sri Iskandar, Perak. We believe this should provide the company with a stronger footing in the European market.

As stated in our previous reports, Pharmaniaga entered into an agreement with three teaching hospitals (Hospital Universiti Sains Malaysia, Hospital Universiti Kebangsaan Malaysia and Universiti Malaya Medical Centre) to supply about 600 pharmaceutical products.

We estimate that the supply agreement with the teaching hospitals should contribute an additional of RM240 million or 13% to Pharmaniaga’s revenue. Although the margin is lower than its government concessions, volume growth should be sufficient to offset the lower margin for the concessions from institutions.

The full impact of the higher costs from the implementation of the pharmacy information system can be seen from financial year 2016 (FY16) onwards.

After housekeeping, Pharmaniaga’s Indonesian arm PT Errita Pharma is expected to break even in FY15 ending December (recorded a loss of RM2.9 million in FY14). We believe the group will be able to benefit from the Indonesian market as it represents one of the most populated countries in the world.

The joint venture in Saudi Arabia with Modern Healthcare Solutions to develop a greenfield manufacturing plant is on track, with capital expenditure of about RM60 million over five years, which the group is targeting to commercialise in 2019.

We raise FY15, FY16 and FY17 earnings per share (EPS) by 1% to 13%. Positives are its synergy from the acquisition, quarterly dividend, secured business outlook as well as its defensive and growing business. Negatives are its forex exposure, high level of stock and gearing. — HLIB Research, March 25

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This article first appeared in The Edge Financial Daily, on March 26, 2015.
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