KUALA LUMPUR (July 24): Kenanga Investment Bank Bhd said it is neutral on Pharmaniaga Bhd's recent plan for a second private placement.

Kenanga described the move as a stop-gap measure while finding a holistic solution to lift the group out of its Practice Note 17 (PN17) status.

In a note on Monday (July 24), the research firm said it was cautious on the pharmaceutical group's prospects as negative shareholders equity of RM143 million (as at end-March) is hampering its ability to give out dividends. On top of that, as the government is seeking better value-for-money contracts, the group may need to offer new, more competitive tariffs.

Last Friday (July 21), Pharmaniaga proposed to undertake a second private placement of 144 million new shares, or 10% of its total issued shares, to the Armed Forces Fund Board (LTAT), and aims to raise RM50 million for working capital.

The second private placement came after the group announced in June its plan to undertake a private placement of 131 million new shares to third-party investors, the price of which was recently fixed at 35 sen per share.

Pharmaniaga’s largest shareholder Boustead Holdings Bhd, with a 52% stake, is being taken private by LTAT, which controls a 97.63% stake in the conglomerate. LTAT controls an 8.62% direct stake in Pharmaniaga.

“The group is confident of its future prospects amid its strategic plan to recover from the PN17 classification and is currently formulating a regularisation plan.

“We project pedestrian earnings growth in the financial year ending Dec 31, 2023 (FY2023) at a level similar to pre-Covid, averaging RM40 million-RM60 million driven by regular orders for medical supplies from the Ministry of Health concession,” said Kenanga on Pharmaniaga's prospects.

Kenanga maintained its ‘underperform’ call on Pharmaniaga, with an unchanged target price of 33 sen.

Pharmaniaga’s share price, which has fallen over 29% year-to-date, was flat at 39 sen on Monday, valuing it at RM510.98 million.

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Pharmaniaga plans second private placement to raise up to RM50m for working capital