News/  Comment

• In an announcement to Bursa Malaysia, Pharmaniaga stated that its wholly-owned subsidiary, Pharmaniaga Logistics Sdn Bhd (PLSB) had entered into a sale and purchase agreement (SPA) with Boustead Curve Sdn Bhd (BCSB) for the acquisition of a leasehold property comprising a warehouse and office.

• The acquired property is located in Seksyen 15, Shah Alam, measuring approximately 7059.2 per sq. meters for a purchase consideration of RM23.32m (RM3303.5 per sq. meters), including GST.

• We understand that the acquisition will be funded via internally generated funds and to be completed within the third quarter of 2015. We believe the group should be able to fund the acquisition adequately, supported by its operating cashflow ranging between RM164m – RM187m.

• The acquisition price is fairly reasonable, in our view. Based on web checks, we gathered that the market price of warehouses in Shah Alam is approximately RM3280 per sq. meters.

• We believe the slight premium is justifiable considering that the property has been customised to fit PLSB’s distribution business during the tenure period.

• Additionally, as PLSB has been leasing the property from BCSB, with this acquisition, PLSB would be able to save circa RM1.1m per year by omitting the rental payments.

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.

Rating

HOLD , TP: RM6.93 

Positives

• Synergy from acquisition, quarterly dividend, secured business outlook thanks to CA as well as defensive and growing business.

Negatives

• FOREX, high level of stock and gearing.

Valuation

Maintain our HOLD call with higher TP of RM6.93 from RM6.58 previously based on updated FY16 P/E multiple of 15.8x, 15% discount to US peers (see Figure #1).

Source: Hong Leong Investment Bank Research - 11 Jun 2015