Results

• 9M14 turnover of RM1,495.8m was translated into core net profit of RM71.9m. This came in within our expectations but slightly ahead of consensus’ estimates, accounting for 77% and 83% of HLIB and consensus full year estimates, respectively.

Deviations

• In line.

Dividends

• Declared 3 rd single tier dividend of 8.0 sen per share (3Q13: 3.0 sen) with ex -date on 5 th Dec. This elevates YTD DPS to 16.0 sen per share.
• Committed to at least sustain FY13’s absolute dividend to be distributed quarterly.

Highlights

3Q14 revenue of RM502.1m recorded 13.9% yoy growth contributed by the entire core business operations. However, it contracted 4.4% qoq due to seasonally lower demand.

EBIT margin gained 2.0ppt yoy to 5.8% as it graduated from the amortization of novation agreement in Jan 2014 which amounted to ~RM2.3m per month.

Logistics and Distribution Division posted PBT of RM4.9m, more than three-fold increase from 2Q14 mainly boosted by higher ASP coupled with higher sales volume.

Manufacturing Division’s PBT slipped to RM22.7m due to lower off -take for in-house products from government hospitals as well as higher R&D expenses.

Moving forward, Pharmaniaga holds a positive outlook as the pharmaceutical sector in Malaysia is showing improved prospects.

The recently acquired ERRITA is expected to contribute positively towards long term earnings, as it conc entrates on exploring new viable business opportunities to broaden earnings base.

Catalysts

• Gaining market share in non-concession and private sectors, synergistic benefits from acquisition, favorable FOREX, continuous effective operational strategy.

Risks

• Political / regulatory / competitive / FOREX risks, failure / delay in drug delivery under CA, compliance to production standards / contamination and drug patent disputes.

Forecasts

• Maintained.

Rating

BUY , TP: RM5.30

Positives

• Synergy from acquisition, quarterly dividend, secured business outlook thanks to CA.

Negatives

• FOREX, high level of stock and gearing.

Valuation

• Reiterate BUY with unchanged fair value of RM5.30 based on FY15 P/E multiple of 14.5x, 10% discount to US peers

Source: Hong Leong Investment Bank Research - 24 Nov 2014