Pharmaniaga’s FY21 core PATAMI of RM213.7m (+326% YoY) exceeded both our and street’s estimates, accounting for 177% and 200% respectively. The discrepancy in our forecast was predominantly due to lower than expected operating costs. We conservatively raise our earnings forecast upwards by 9- 11%, to reflect the better-than-expected results as we lower our cost assumptions. In turn, TP is subsequently raised to RM1.13, implying a PE multiple of 18.5x (at +1SD of its 5-year mean). Maintain BUY on Pharmaniaga.

Above expectations. 4Q21 core PATAMI of RM110.7m (+91% QoQ, +1864% YoY) brought FY21 sum to RM213.7m (+326% YoY), accounting for 177% and 200% of our and consensus projections respectively. The positive results surprise was due to lower-than-expected operating costs. 4Q21 core PATAMI was arrived after adjusting for EIs (provision of stock obsolescence and inventory write-offs, impairments and forex gains) amounting to RM25.2m.

Dividend. 4Q21 declared dividend 5 sen per share, going ex on 7 Mar 2022. (FY21: 9.3 sen). 4Q20: 0.2 sen (FY20: 2.2 sen)

QoQ. Revenue was 67% lower QoQ, due to the lower sales of Covid-19 vaccine to the Ministry of Health (MoH). In spite of that, core PATAMI jumped 91% QoQ, owing to lower operating expenses (-85% QoQ).

YoY. Revenue registered a 12% YoY growth, as all segments delivered better revenue contribution on a YoY basis. Its manufacturing segment saw the strongest growth (+711% YoY), due to the supply of Covid-19 vaccines to the private sector. As a result of lower operating expense (-59% YoY) and better product mix (sale of vaccines to private sector is more lucrative in terms of margins), core PATAMI jumped by nineteen-fold to RM110.7m.

YTD. Revenue was 77% stronger YoY, mainly due to the sale of Covid-19 vaccine to MoH and private sector, as revenue for its manufacturing division was 465% higher. Pharmaniaga’s logistic and distribution segment also delivered better sales (+19% YoY), as the group was involved in the distribution of AstraZeneca vaccines. Better performance from its manufacturing division also boosted overall margins, resulting in core PATAMI growing by 326% YoY.

Outlook. The MoH has recently announced that Sinovac vaccines will be offered as booster dose for walk-ins at off-site vaccination centres under the National Covid-19 Immunisation Programme (PICK). At this point, it is still unsure if the government will be placing order for extra doses of Sinovac vaccine for this purpose. However, we highlight that 58% of the adult population has received their booster shot. Assuming if the remaining 42% of the remaining adult population opts for Sinovac booster, that would translate to a demand of c.9m doses. Hence, we do not rule out the possibility of government procuring more Sinovac boosters from Pharmaniaga in the near term, to have the adult population fully boosted.

Forecast. We conservatively raise our earnings forecasts for FY22-23 by 9-11%, to reflect the stronger-than-expected results delivered this quarter.

Maintain BUY, TP: RM1.13. Following our earnings adjustment, our TP is subsequently raised to RM1.13 from RM1.04, implying a valuation of 18.5x (at +1SD of its 5-year mean). Maintain BUY.

Source: Hong Leong Investment Bank Research - 18 Feb 2022