Pharmaniaga’s FY20 core PATMI of RM50.2m (vs. FY19 core LATMI –RM123.9m) was below expectations. The deviation was due to higher than expected cost. FY20 revenue decreased (-3.4% YoY) mainly due to concession and Indonesia business. We reduce our FY21-22 earnings by -7%/-8% to reflect in higher costs. Post earnings adjustments, our TP decreases to RM5.27 (from RM5.70) and this is based on FY21 earnings pegged to P/E multiple of 21.5x (+2SD of 5 year mean). We maintain BUY.

Below expectations. 4Q20’s core PATMI of RM5.6m (+28.4% QoQ, 4Q19 core LATMI –RM165.1m YoY), brought FY20’s sum to RM50.2m (vs. FY19 core LATMI – RM123.9m). Core earnings were achieved after eliminating total EIs; impairments, provision of stock obsolescence and forex gains, of –RM22.7m. The results accounts for 81% of ours and 90% of consensus estimates. The results shortfall was due to higher-than-expected cost.

Dividend. Declared dividend of 1.0 sen per share going ex on 30 Mar 2021 (FY20: 11 sen per share vs. FY19: 8.5 sen per share).

QoQ. Revenue improved marginally to RM634.6m (+1.6%) mainly due to stronger demand from both concession and Indonesia business. However, EBITDA fell (-49.8%) due to higher opex (+3.6%) which came as a result of urgent deliveries required during Covid-19 pandemic. That said, lower net finance costs (-53.2%) and reversal of over provisioning of deferred tax liability helped to mitigate the fall in PATMI. Post-adjusting for EIs (as above), core bottom-line increased 28.4%.

YoY. Decline in revenue (-11.3%) was mainly due to weaker demand from concession business due to Covid-19 pandemic, which led to EBITDA falling 38.5%. That said, a much lower depreciation and amortisation charge of RM9m vs RM236m in 4Q19 (Pharmacy Information System (PhIS) amortisation was fully charged in FY19) was a key factor leading to a better core PATMI showing (RM5.6m vs -RM165.1m in 4Q19).

FY20. Revenue dropped slightly to RM2.7bn (-3.4%) on the back of weak performance at the concession business (demand fell as a result of reduction of number of people going to hospitals amid Covid-19 pandemic). In turn, EBITDA fell by 19.4%. Again, the sharp fall in depreciation and amortisation charge of RM32m vs RM284m in FY19 (due to PhIS being fully amortised in FY19) was a reason why core PATMI to improve significantly to RM50.2m (FY19: -RM123.9m).

Outlook. We are optimistic on better FY21 with potential projections coming from fill and finish process for Covid-19 vaccines. Furthermore as we understand the refurbishment on its small volume injectable plant in Puchong was completed in Dec 2020 and ready to undertake the fill and finish for Covid-19 vaccines. Pharmaniaga will continue to focus on cost management and operational efficiencies.

Forecast. We reduce our FY21-22 earnings by -7%/-8% to reflect in higher costs

Maintain BUY, TP: RM5.27. Post earnings adjustments, our TP decreases to RM5.27 (from RM5.70). Our TP is based on FY21 earnings pegged to P/E multiple of 21.5x (+2SD of 5 year mean). We maintain BUY.

Source: Hong Leong Investment Bank Research - 24 Mar 2021