Pharmaniaga Bhd
(March 13, RM5.80)
Maintain buy with a target price (TP) of RM6.21: In its filing with Bursa Malaysia last Thursday Pharmaniaga announced that its wholly-owned subsidiary Pharmaniaga Logistics Sdn Bhd had entered into a supply agreement with Universiti Malaya (UM) to undertake the services of purchasing, storing, supplying and delivering UM-approved pharmaceutical products to UM.

Pharmaniaga also entered into similar supply agreements with Universiti Kebangsaan Malaysia and Universiti Sains Malaysia, announced on March 10, 2015 and Feb 13, 2015 respectively.

Akin to the supply agreements with both public universities stated above, the total value of the agreements will depend on actual volume, agreed unit price of approved products, and the scope of services rendered from time to time during the agreements’ period. The agreement will commence from the date of the supply agreement March 12, 2015 and end on Nov 31, 2019.

Our positive view on the partnerships with three public universities remain as it will increase Pharmaniaga’s market reach and create additional revenue stream for the company. Also, we do not discount the possibility of another partnership with other public universities in Malaysia.

Catalysts are gaining market share in non-concession and private sectors, synergistic benefits from acquisition, favourable foreign exchange (forex), and continuous effective operational strategy.

Risks are political, regulatory, competitive and forex risks; and failure or delay in drug delivery under agreements, compliance to production standards or contamination, and drug patent disputes.

Forecasts are unchanged pending more information and update from the management.

Positives are synergy from acquisition, quarterly dividend, and secured business outlook thanks to agreements. Negatives are forex, high level of stock and gearing. 

Reiterate “buy” with unchanged TP of RM6.21 based on financial year 2016 price-earnings ratio multiple of 15 times, 15% discount to United States peers. — Hong Leong Investment Bank Bhd, March 13

This article first appeared in The Edge Financial Daily, on March 16, 2015.