Pharmaniaga’s 1Q18 core earnings of RM22.6m (+98% QoQ, +15.5% YoY) was within ours and consensus expectations. Revenue came in flattish in tandem with the government orders. Indonesia slipped back into the red whilst core PATAMI improved by +15% YoY due to better cost management and a revised depreciation schedule. Our forecast is unchanged and we maintain our HOLD rating with TP of RM3.97.

Within expectation. 1Q18 turnover of RM617.9m (-0.1% YoY) translated into core PATAMI of RM22.6m (+15.5 % YoY), accounting for 37% of ours and 36% of streets estimates. We deem the results to be broadly in line as we expect a slower 2Q18 and 3Q18 based on historical procurement trends of the government.

Dividend. Declared first interim dividend of 5.0 sen per share (1Q17: 4.0 sen per share), which will go ex-going on 30 th May 2018.

YoY: 1Q18 revenue declined marginally (-0.1% YoY) to RM617.9m attributed to flattish orders from government hospitals and lower contributions from Indonesia (- 8.3% YoY). Core PATAMI increased to RM22.6m (+15%) due to (i) a recovery in the logistics and distribution segment arising from better cost management via the stream lining of marketing and promotional expenses; and (ii) revision of its PPE depreciation schedule thus reducing its depreciation cost.

QoQ: Revenue grew marginally (+0.8% QoQ) whilst core PATAMI increased by 47% due to the same above mentioned factors.

Indonesia. MPI slipped back into the red, recording a PBT of –RM0.4m (FY17: RM4.0m). This downturn was due to higher finance costs and having to incur A&P costs for its products from PT Errita, where previously MPI was purely distributing for its principals who incurred the A&P.

Forecast. Unchanged.

Maintain Hold and TP of RM.3.97 Our TP is based on FY19 earnings pegged to a P/E multiple of 15x, in line with peers’ average.

Source: Hong Leong Investment Bank Research - 17 May 2018