We are positive on Pharmaniaga’s ability to take part in the Covid-19 vaccine fill and finish process. We feel that it has the capacity, capabilities and expertise. We keep our forecasts unchanged at this juncture, and will revisit when more clarity is given on the Covid-19 vaccines bottling process. With more plans unveiled on its “vaccine foray”, coupled with strong sentiment on such plays, we raise our PE target from 18x (+1SD to 5 year mean) to 21.5x (+2SD). This raises our TP from RM4.95 to RM5.94. BUY rating maintained. Our TP is de rived from P/E target of 21.5x (+2SD above 5 year mean) pegged to mid FY21 EPS.

We attended Pharmaniaga’s briefing and the following are some key takeaways:

World’s first halal vaccine facility. Pharmaniaga’s journey to have the world’s first halal vaccine facility started back in 2018. It has visited and established partnership with vaccine producers from China, India, Russia and Thailand. It aims to trade 12 general vaccines, and already have 1 product registered. The first floor of their Puchong plant will be made to cater for the vaccine facility (12 general vaccines; 5 fill and finish process and 6 trading vaccines) is expected to be ready in 2022.

3 phases of execution. Pharmaniaga is focused on going into the above in 3 phases. Firstly, it will venture into this via registration and trading; registering the vaccine would approximately takes 2 years and then only it can be traded. Secondly, fill and finish in new prefilled syringes lines (RM100m investment), of which the vaccine will be put into individual syringes instead of in a bottle, and product development of new vaccines. For the latter, we understand that a new patented vaccine is projected to be ready in 2024. Lastly, a new vaccine manufacturing plant (RM100m investment) is expected to be ready in 2026.

Covid-19 vaccine fill and finish. In Malaysia, there are not many companies with the capabilities to do a “fill and finish” process. To have a facility and getting it to be up and running would take about 3 years. The registration process itself would take about 2 years to obtain. Pharmaniaga’s Small Volume Injectable (SVI) plant is suitable for Covid-19 fill and finish for inactivated/killed vaccine. This facility is a sterile GMP approved plant and the only SVI plant in Malaysia with EU GMP. For Pharmaniaga, the plan is that when the government has gotten a vaccine, Pharmaniaga would repurpose its ground floor plant located in Puchong to be able to do the fill and finish process; this plant has the required capacity and capabilities. While some changes are needed to be done (i.e. additional attachment equipment), it will roughly cost less than RM2m, and the period to implement the changes is fast (c.1 month). Current projected capacity from this is 10m doses per month on 10 doses vial (1 bottle having 10 doses). Pharmaniaga is of the opinion that the earliest bottling process for Covid19 vaccine would be in 1Q21. While the government has yet to announce the participation of Pharmaniaga in Covid-19 vaccine, we are positive that Pharmaniaga will be the ideal choice, having all the capabilities intact.

Looking ahead. Pharmaniaga intends to increase its presence in the private sector by increasing its product range, especially in the over-the-counter segment. To remain competitive, Pharmaniaga is looking into therapeutics, vaccines, and insulins.

Forecast. We keep our forecasts at this juncture, as the fill and finish process will not start immediately and there are still multiple things that needs to be panned out first, most importantly, an actual discovery of the vaccine.

Maintain BUY, TP: RM5.94. With more plans unveiled on its “vaccine foray”, coupled with strong sentiment on such plays, we raise our PE target from 18x (+1SD to 5 year mean) to 21.5x (+2SD). This raises our TP from RM4.95 to RM5.94. We maintain BUY. Our TP is derived from P/E target of 21.5x (+2SD above 5 year mean) pegged to mid FY21 EPS.

Source: Hong Leong Investment Bank Research - 25 Aug 2020