Results

• FY14 turnover of RM2,122.9m was translated into higherthan- expected core net profit of RM111.8m, accounting for 121% and 134% of HLIB and consensus full year estimates, respectively.

• One-off adjustments: RMk Write-offs Impairment FOREX Tax Total 4Q13 4,580 5,000 776 -2,100 8,256 3Q14 5,501 0 379 0 5,880 4Q14 2,379 19 819 0 3,217

Deviations

• Marginally higher-than-expected revenue.

• Lower-than-expected tax rate.

Dividends

• Declared 4th interim dividend of 12.0 sen per share (4Q13: 6.2 sen) with ex-date on 9th March. This elevates YTD DPS to 28.0 sen per share.

Highlights

• 4Q14 revenue of RM627.1m (+10.4% yoy, +24.9% qoq) went against the traditional trend of being the seasonally weakest quarter with highest registered sales since FY11. This was mainly due to strong contributions from its core business operations.

• FY14 sales ratio of concession: non-concession: Indonesia business was 58%: 22%: 20% which was relatively constant compared to FY13’s breakdown of 57%: 22%: 21%.

• Logistics and Distribution Division posted its strongest quarter performance in 2014 with PBT of RM18.9m, more than three-fold increase from 3Q14 mainly boosted by higher demand from government hospitals.

• EBIT margin gained 1.1ppt yoy to 6.6% as it graduated from the amortization of novation agreement in Jan 2014 which amounted to ~RM2.3m per month.

• Moving into the new financial year, Pharmaniaga remains optimistic as the pharmaceutical sector in Malaysia is showing potential growth opportunities.

• The manufacturing plant in Indonesia is expected to contribute positively towards long term earnings, as it concentrates 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

• Updated model with the latest pharmaceutical data and rolled over our model. In turn, FY15 and FY16 EPS were revised upward by 15% and 12%, respectively.

Rating

BUY , TP: RM6.00

Positives

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

Negatives

• - FOREX, high level of stock and gearing.

Valuation

• Reiterate BUY with higher fair value of RM6.00 (+13% from RM5.30 previously) as we rolled forward our valuation, based on FY16 P/E multiple of 14.5x, 20% discount to US peers (see Figure #6).

Source: Hong Leong Investment Bank Research - 24 Feb 2015