Pharmaniaga has entered into an Agreement with MOH for the purchase and distribution of 12m doses of Covid-19 vaccine. The fill and finish process is seen to commence in Feb 2021 while the finished Covid-19 vaccine is expected to be delivered to MOH by Apr 2021. We are positive on this news, as we believe it will enhance Pharmaniaga’s vaccine business as well as create a new income stream for the company. We retain our forecasts, pending more details from management. With the hype of vaccines and positive news flow, we feel this is an opportunity to accumulate Pharmaniaga in light of recent share price weakness. Hence, we upgrade our call to BUY (from Hold) but maintain our TP of RM5.70 (PE multiple of 21.5x of mid FY21 EPS).

NEWSBREAK

Pharmaniaga has entered into a Term Sheet Agreement with Ministry of Health (MOH) for the purchase and distribution of Covid-19 vaccine, CoronaVac, that is developed by Sinovac Life Sciences Co. Ltd.

The Agreement would allow Pharmaniaga to supply 12m doses of finished Covid-19 vaccine. Pharmaniaga will carry out fill and finish process for CoronaVac as well as handling the logistics and distribution to hospitals, clinics and any other facilities nationwide as per MOH instructions.

The Agreement is effective from 26 January 2021 and remains in force for a period of 1 year (subject to earlier termination by either party for failing to meet obligations).

HLIB'S VIEW

Recap. To recap, Pharmaniaga has entered into an Agreement with Sinovac on 12 Jan 2021 for the purchase of ready-to-fill bulk product to supply 14m doses of Covid-19 vaccine in Malaysia. The process of fill and finish of the vaccine will be executed in Pharmaniaga’s small volume injectable (SVI) high-tech plant in Puchong.

Positive. We are positive on the news as we feel the Agreement would strengthen Pharmaniaga’s vaccine business alongside its logistics and distribution segment. Furthermore, this Agreement would create a new income stream for Pharmaniaga. However, as the Agreement is kept confidential, we are not able to forecast any contributions at this juncture.

Development. Approval from the National Pharmaceutical Regulatory Agency (NPRA) is required for the manufacturing and distribution of vaccine in Malaysia. As we understand, Pharmaniaga has submitted its application for registration with NPRA on 19 Jan 2021. Subject to approval by the NPRA, the finished Covid-19 vaccine is expected to be delivered to MOH by Apr 2021. The manufacturing of the fill and finish into vials is expected to commence in Feb 2021. Once approved by NPRA, Pharmaniaga will be the product registration holder and exclusive distributor for Malaysian market for finished products both locally and imported from China for both Government and private sector.

Forecast. We keep our forecasts unchanged for now, pending more details from management.

Upgrade to BUY, TP: RM5.70. With Pharmaniaga gaining hype on vaccine news we feel this is an opportunity to accumulate given recent share price weakness. Hence, we upgrade our call to BUY (from Hold). We maintain our TP of RM5.70, based on mid FY21 earnings pegged to P/E multiple of 21.5x (+2SD of 5 year mean).

Source: Hong Leong Investment Bank Research - 27 Jan 2021