Highlights/ Comments

• In an announcement to Bursa Malaysia, Pharmaniaga stated that its subsidiary Pharmaniaga Logistics Sdn Bhd had entered into a Supply Agreement with Universiti Kebangsaan Malaysia (UKM) to undertake the services of purchasing, storing, supplying and delivering to UKM drugs and nondrugs approved by UKM (Approved Products).

• The contract will commence from the date of the supply agreement 10th March 2015 and will end on 30th November 2019.

• Recall that Pharmaniaga also entered into a similar supply agreement with Universiti Sains Malaysia on 13th February 2015.

• Similar to the supply agreement with USM, total value of the agreement will depend on actual volume, agreed unit price of Approved Products and scope of services rendered from time-to-time during the agreement period.

• As stated in our previous report dated 16th February 2015, we reiterate that the supply agreement will spur more potential business opportunities with other university hospitals in Malaysia.

• We believe this should provide Pharmaniaga with more room to supply its products and services to other university hospitals of UKM, thus, creating a long term partnership with the university.

• Overall, we are positive on this new development to supply pharmaceutical products to university hospitals. This should widen its market reach and provide additional boost to the company’s 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: RM6.21

Positives

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

Negatives

• FOREX, high level of stock and gearing.

Valuation

• Reiterate BUY with higher fair value of RM6.21 (+3.5% from RM6.00 previously) based on higher FY16 P/E multiple of 15x, 15% discount (from 10% previously) to US peers (see Figure #1) as we see improving prospects for the company, especially after recent developments.

Source: Hong Leong Investment Bank Research - 11 Mar 2015