Pharmaniaga’s1Q21’s core PATMI of RM26.5m (+369.7% QoQ, +0.0% YoY) was above ours and consensus expectations, accounting for 36.3% and 45.2% of full year forecasts respectively. The positive results surprise was due to stronger than expected recovery in demand from government and private hospitals in Malaysia. While we expect the recently implemented MCO restrictions to result in lower demand in 2Q21, we expect earnings to be driven by the fill and finish process of 14m Sinovac vaccines, which we expect to add c. RM15.5m at the EBIT level. We keep our forecasts, TP of RM5.27 (pegged to 21.5x PE) and BUY call unchanged pending Pharmaniaga’s briefing on 28/5/21.

Above expectations. 1Q21’s core PATMI of RM26.5m (+369.7% QoQ, 0.0% YoY) was above ours and consensus expectations, accounting for 36.3% and 45.2% of full year forecasts respectively. Core PATMI was arrived after adding back EI items comprising impairments, provision of stock obsolescence and forex amounting to RM3.4m. The positive results surprise was due to stronger than expected recovery in demand from government and private hospitals in Malaysia.

Dividend. Declared DPS of 4.0 sen per share goes ex on 4 Jun 2021 (1Q20 DPS: 6 sen)

QoQ. Revenue rose +25.0% of the back of stronger demand from government and private hospitals in Malaysia. Note that Pharmaniaga’s logistics & distribution (+40.5%) and manufacturing divisions (+27.3%) showed significantly stronger sales. In tandem with higher sales, core PATMI rose nearly 4x, albeit from a low base.

YoY. Sales decreased -3.2% mainly due to lesser sales from Indonesia operations (- 15.7%) due to Indonesia’s social restrictions, which resulted in limited access to doctors, clinics, pharmacies and hospitals. Poorer Indonesia profitability (LBT of – RM1.1m from breakeven in 1Q20) was offset by lower finance costs from lower OPR rate. This resulted in core PATMI remaining flat (+0.0%).

Outlook. While we expect the recently implemented MCO restrictions to result in lower demand, we expect earnings to be driven by the fill and finish process of 14m Sinovac vaccines. Based on our back of the envelope calculations, we expect the venture to add circa RM15.5m at the EBIT level. This is based on (i) purchase price of USD11 (RM44) per dose (given that Indonesia had purchased completed Sinovac vaccines for USD13.60 per dose) (source) (ii) EBIT margin of 2.5% based on 3-year average L&D EBIT margin. The first batch of 290.5k doses have commenced in May.

Forecast. Unchanged, pending results briefing on the 28 May.

Maintain BUY, TP: RM5.27. We maintain our BUY call and TP of RM5.27 based on 21.5x FY21 PER (+2SD 5 year mean) pending Pharmaniaga’s results briefing.

Source: Hong Leong Investment Bank Research - 24 May 2021