PHARMA will be one of the winners in the Budget 2022 amid higher allocation to MOH in 2022 of RM32.4bn (+1.6% YoY), thanks to its role as the sole concession holder to distribute drugs and consumables to public hospitals and clinics, as well as the increased drug purchase.

Although there is no clear sign on whether Sinovac will be allowed to be one of the boosters shot, we do not rule out the possibility of Pharma potentially supplying vaccines to the government again. Any green light from the government to use Sinovac as booster shot is expected to catalyse share price.

In addition, the recent non-binding MOU with the National Institute of Biotechnology Malaysia (NIBM) is expected to augur well for PHARMA’s plans to establish the world’s first halal vaccine manufacturing plant in Malaysia, which is in line with the Malaysian government’s plan. Under this non-binding MOU, both parties will be providing technical services particularly on the R&D of vaccines.

After tumbling 41% from a high of RM1.41 (1 Jun) to a low of RM0.79 (20h July), the stock has staged a steady recovery to end at RM0.80. PHARMA is currently trading at an undemanding valuation of 15.6x FY22 P/E (39% discount against its 5-year P/E of 25.8x) together will generous FY22 dividend yield of 4.1%. Going forward, PHARMA is in discussions with Sinovac Biotech Ltd to facilitate the export of the vaccine to countries that face challenges in securing sufficient supply, including Indonesia, The Philippines, Cambodia, Thailand, as well as several African nations. Beyond the Covid - 19 vaccine, the group will continue to focus on its Indonesia market through the expansion of its distribution coverage coupled with strong products in the pipeline.

Technically, PHARMA is building a sound base near RM0.76-79 territory, which we believe would offer buying opportunity. A strong breakout above RM0.85 (200D MA) will spur the prices toward RM0.93-RM1.04 territory. Cut lost at RM0.70.

Source: Hong Leong Investment Bank Research - 3 Nov 2021