Pharmaniaga is upbeat with their Covid-19 vaccine rollout plans as the fill and finish process is progressing well. Also, they are confident with their own capacity and capabilities to distribute the vaccine nationwide. Pharmaniaga remains positive on upcoming quarters with expectation of higher PPE sales and hopeful for a turnaround in Indonesian business. We maintain our forecasts as the briefing yield no major surprises. We retain our HOLD call with unchanged TP of RM5.70. Our TP is based on FY21 earnings pegged to P/E multiple of 21.5x (+2SD of 5 year mean).

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

Covid-19 vaccine capabilities. Management shared that the preparations for the fill and finish process are progressing well, and their small volume injectable plant in Puchong is c.80% ready. Pharmaniaga is confident of having sufficient capacity to distribute vaccines nationwide. Pharmaniaga currently has a 5-year contract to provide logistics and distribution services for MOH up to end-Nov 2024. Additionally, under its concession agreement, Pharmaniaga has been distributing vaccines nationwide since 1994. Furthermore, it has readily available facility and proper methodology that allows the transportation of vaccines to be carried out swiftly.

Potential challenge. If government chooses Covid-19 vaccine that requires storage and handling of very low temperature (i.e. Pfizer-BioNTech vaccine which requires storage below -70C), this may pose some constrains, especially at customers’ premise which is not equipped to handle such temperature. Pharmaniaga has been familiar with handling vaccines between 2-8C, and can also equipped to handle cold chain transportation up to -80C. For Ultra cold chain (UCC) of -70C, Pharmaniaga will be able to transport the UCC to customers’ premise but the challenge would be for them to store the vaccines. Lower temperature vaccine requirement would require more resources to ensure it can be stored competently. Hence, we feel it would be a challenge, if government opt for the vaccine that requires UCC, as evidently, not all government hospitals would have the capabilities and facilities to store the vaccine.

Vaccine facility. Pharmaniaga’s development of having its owned vaccine license by 2024 and a vaccine manufacturing plant by 2026 is right on track. With the first step of having the collaboration with SERUM (inked MOU on 26 Oct) set to start off in 2022.

Looking ahead. Pharmaniaga expects better performance in 4QFY20 driven by the potential increase in PPE sales due to third wave of Covid-19 cases in Malaysia. On Indonesia’s division, despite Covid-19 effect, it still showed growth in sales. Management is optimistic that Indonesia’s business will turn to black by 1HFY21.

Forecast. We keep our forecasts at this juncture, as the briefing yielded no major surprises.

Maintain HOLD, TP: RM5.70. We maintain HOLD with unchanged TP of RM5.70. Our TP is based on FY21 earnings pegged to P/E multiple of 21.5x (+2SD of 5 year mean). Pharmaniaga’s share price has rallied 194% since our Buy rating upgrade back in 24 Feb. We reckon it is now time to take some money off the table; our rating was downgraded to HOLD last week post 3Q results.

Source: Hong Leong Investment Bank Research - 23 Nov 2020