Values re-emerge for Pharmaniaga after sliding 43% since GE14, says HLIB Research

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KUALA LUMPUR (March 6): Hong Leong Investment Bank (HLIB) remains positive on Pharmaniaga Bhd despite the group’s 43% meltdown in share price since the 14th General Election last year and the non- renewal of concessions by the Ministry of Health (MoH)

According to a technical tracker note this morning, HLIB said that it is maintaining its buy call for stock, with a target price (TP) of RM3.55  despite the MoH’s non-renewal of its concessions ending in Nov 2019.

The maintenance in the counter’s TP and buy call is due to the group’s expertise in its learning and development, margins from its unattractive concession businesses (which stand at circa 1% to 2%) that in turn attract other distributors or competitors.

Furthermore, HLIB said that is highly unlikely that the government’s current financial position would allow it to return public drug distribution into the public hands. HLIB also highlighted that Pharmaniaga’s business contribution from its Indonesian segment is increasing, as well as an attractive risk-reward profile of 10 times its  price to earnings ratio (P/E) for the financial year of 2019 (FY19E) and 1.2 times price to book value (P/B).

“In the short term, PHARMA may trap in consolidation mode as share prices continue to hover below the multiple simple moving averages (SMAs). Nevertheless, downside risks are limited as MACD histograms are on the mend, coupled with deeply oversold slow stochastic and relative strength index (RSI).

Once this pattern ends, we expect prices to stage a breakout above RM2.52 (10 deviation (D) SMA), followed by the RM2.68 (38.2% FR) barrier, before reaching our long term (LT)  objective at RM2.78 (23.6% FR). Key supports are RM2.28 (all-time low) and RM2.13 (123.6% FR). Cut loss at RM2.12” said the technical note.

As of 9:18am, shares in Pharmaniaga Bhd were up a sen or 0.42% higher to RM2.37, with 64,000 shares traded - with the group having a market capitalisation of RM652.21 million.