Highlights/ Comments

• In its filing to Bursa Malaysia yesterday, 12th March 2015, Pharmaniaga announced that its wholly-owned subsidiary, Pharmaniaga Logistics Sdn Bhd has entered into a Supply Agreement with University of Malaya (UM) to undertake the services of purchasing, storing, supplying and delivering to UM of pharmaceutical products approved by UM.

• Pharmaniaga also entered into a similar supply agreement with Universiti Kebangsaan Malaysia (UKM) and Universiti Sains Malaysia (USM), announced on 10th March 2015 and 13th February 2015, respectively.

• Akin to the supply agreement with both public universities stated above, 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.

• The agreement will commence from the date of the supply agreement 12th March 2015 and end on 30th November 2019.

• Our positive view on the partnerships with three public universities remains as it will increase Pharmaniaga’s market reach and create additional revenue stream for the company.

• Also, we do not discount the possibility of another partnership with other public universities in Malaysia.

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

• Unchanged. Pending more information and update from the management.

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 unchanged TP of RM6.21 based on FY16 P/E multiple of 15x, 15% discount to US peers (see Figure #1).

Source: Hong Leong Investment Bank Research - 13 Mar 2015