Friday 29 Mar 2024
By
main news image

KUALA LUMPUR (Nov 19): Pharmaniaga Bhd shares rose 6.61% this morning after the group was granted two contract extensions by the Health Ministry (MoH).

At 10.16am, Pharmaniaga's share price was up 13 sen at RM2.40 with a market capitalisation of RM592.99 million, making it one of the top gainers across Bursa Malaysia.

In a Bursa filing yesterday, Pharmaniaga said MoH has extended its contract to supply medicine and medical supplies to MoH facilities for an interim period of 25 months, from Dec 1, 2019 to Dec 31, 2021.

In addition, Pharmaniaga was also awarded a five-year contract extension to provide logistics and distribution (L&D) services to MoH up to end-December 2024.

The extensions were a reprieve for Pharmaniaga, following an Oct 31 announcement from Health Minister Datuk Seri Dr Dzulkefly Ahmad that there will no longer be concessionaires for L&D services for medical supplies, and an open tender system will be introduced instead.

The ministry had deemed Pharmaniaga's concession to be a monopoly.

Meanwhile, CGS-CIMB Research has maintained its "hold" call on Pharmaniaga with a lower target price of RM2.17 due to higher amortisation charges.

The concession agreement extension is good news, as the research house had highlighted in its previous note that Pharmaniaga still has an edge over its peers in providing L&D services to the MoH, CGS-CIMB Research said in a note today.

"This is given its existing infrastructure network nationwide that allows it to offer more competitive rates," it said.

However, this good news is offset by the research house's view that Pharmaniaga would need to fully amortise the book value (RM205.8 million as of end-1H19) of the group's Pharmacy Information System (PhIS), which the group has developed for MoH over a shorter time frame of five years (extension tenure) versus the research house's previous expectation of 10 years.

Hence, CGS-CIMB Research's financial year 2019-2021 forecast (FY19-21F) earnings per share (EPS) estimates were cut by 21.4-36.3% to account for higher amortisation charges for the PhIS system.

The research house raised its target calendar year 2021 forecast (CY21F) price-to-earnings (P/E) to 11.5 times (10-year historical mean) as it removed the 20% discount which it inputted previously due to earnings risk from non-renewal of Pharmaniaga's services to MoH.

To recap, Pharmaniaga has since 1994 held exclusive rights to purchase medical items under the MoH's approved product purchase list from suppliers selected by the ministry, and distribute them to MoH's medical institutions.

"We estimate the [concession agreement's] total sales value was worth RM1.1 billion in 2018. However, on Nov 1, 2019, [Dzulkefly] said Pharmaniaga's current [agreement] to provide L&D services [for] drugs and medical supplies to MoH will end upon the [agreement's] expiry on Nov 30, 2019," it said.

      Print
      Text Size
      Share