We attended Pharmaniaga’s 1Q21 results briefing and came away feeling positive on the group’s prospects going forward. Based on our back of the envelope calculations, we expect the fill and finish of 14m doses to add circa RM15.5m at the EBIT level. We keep our forecasts unchanged. After rolling over our valuation year to FY22, our TP rises to RM5.52 (from RM5.27 previously) pegged to an unchanged 21.5x PE multiple. Maintain BUY.

We attended Pharmaniaga’s 1Q21 results briefing and came away feeling positive on the group’s prospects going forward.

Sinovac vaccines. To recap, Pharmaniaga is the sole and exclusive distributor of Sinovac vaccines in Malaysia. NPRA approval has been finalised for both finished doses as well as fill and finish doses by Pharmaniaga. Sinovac’s initial agreement of 8,820L bulk order for fill and finish is equivalent to 14m doses. 12m is contracted to for the Malaysian government. While 2m doses are intended to be sold to the private sector. However, the 2m doses intended for private sector has still yet to be approved by the government. As of 17 May 1st batch of 290k have been distributed to MoH. As of 22 May 1.9m vials have been filled. Currently, Pharmaniaga has a fill and finish capacity of 2mil per month (based on one dose per vial). From August, this is expected to hit 4m capacity as there are plans to increase it to 2 doses per vial (subject to approval).

New proposal. Pharmaniaga has a contractual obligation to provide the Malaysian government with 12m doses within 8 months (which was meant to be all fill and finish by Pharmaniaga). However, they are now proposing to the government to supply them with 12m doses (5m fill and finish & 7m finished product) within 3 months.

Additional 10m finished doses ordered. As they expect Sinovac vaccines to soon be approved by the WHO, Pharmaniaga have made an additional order of 10m finished doses of Sinovac vaccines (3m ordered, 7m pre-booked). This is because they expect global demand for Sinovac vaccines to spike after WHO approval is granted.

Earnings impact of Sinovac vaccines. Based on our back of the envelope calculations, we expect the fill and finish of 14m doses 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. While we have yet to factor in the financial impact of the additional 10m finished doses ordered recently, we expect the earnings impact to be minimal, as the nature of these will be purely trading, we reckon the margins will be razor-thin.

Forecasts: Despite 1Q21 core PATMI accounting for 36.3% of our full year forecasts, we maintain our forecasts as we expect weaker earnings in 2Q21 from weaker sales volume from the implementation of MCO3.0. Furthermore, our FY21 core PATMI forecast is already 16.4% above consensus estimates.

Maintain BUY, TP: RM5.52. After rolling over our valuation year to FY22, our TP rises to RM5.52 (from RM5.27 previously) pegged to an unchanged 21.5x PE multiple (+2SD from 5 year average mean)

Source: Hong Leong Investment Bank Research - 31 May 2021