Pharmaniaga’s reported 1Q22 core PATAMI of RM31.0m (-72% QoQ, +17% YoY), exceeding both our and consensus projections at 39% and 28% respectively. The discrepancies in our projection were due to higher-than-expected revenue. We conservatively raise our earnings forecasts for FY22-23f by 3-16%, and we also introduce our FY24f earnings of RM88.0m. Despite lifting our earnings forecasts, we remain wary over its irregular quarterly earnings pattern (1Q is typically the strongest quarter). We also value Pharmaniaga at a lower PE multiple of 11.6x (at +0.5SD of its 5-year mean), as we opine that it is less likely for the Group to be required to supply a large amount of Covid-19 vaccines in one go now, following Malaysia’s transition into the endemic phase. Our TP is subsequently lowered to RM0.83 (from RM1.13 previously), reiterate BUY on Pharmaniaga.

Beating estimates. Pharmaniaga’s 1Q22 core PATAMI of 31.0m (-72% QoQ, +17% YoY), beat both our and consensus projections at 39% and 28% respectively. The discrepancies in our projection were due to higher-than-expected revenue. 1Q22 core PATAMI was arrived at after adjusting for EIs (provision of stock obsolescence and inventory write-offs, impairments and forex losses) amounting to RM3.3m.

Dividend. Declared dividend of 0.8 sen per share, going ex on 7 June 2022. (1Q21: 0.8 sen per share – adjusted for bonus issue).

QoQ. Revenue recorded a 35% growth, owing to the stronger contribution from both its concession and Indonesian business. However, the lower Covid-19 vaccines sales (which generally fetches superior margins as compared to its concession business) has led to EBIT margins narrowing by 14ppts. Core PATAMI declined by 72% as a result.

YoY. Revenue increased by 21%, given that all of Pharmaniaga’s business segments reported improved contributions (Logistics and distribution: +20%, Manufacturing: +4%, Indonesia: +23%), on the back of stronger demand from customers as we emerge from the pandemic. In tandem with the stronger revenue, core PATAMI also reported a growth of 17%.

Outlook. With regards to the logistics and distribution contract extension agreement between Pharmaniaga and Ministry of Health (MoH), we note that both parties are still in the midst of finalising the terms and is targeting to ink the agreement in 3Q22. Moving forward, the Group is committed to strengthen its foothold in Indonesia and doubling the segment’s revenue contribution, by revamping the business model of its logistics and distribution arm, and at the same time growing its manufacturing arm’s portfolio of products. Construction for its halal vaccine and insulin facility is also currently underway, targeted to be fully ready by end-CY23 and commercialisation to begin in CY25.

Forecast. We conservatively raise our earnings forecasts for FY22-23 by 3-16%, to reflect the stronger-than-expected results delivered this quarter. We also introduce our FY24f earnings forecast of RM88.0m.

Maintain BUY, TP: RM0.83. As we transition into an endemic phase, we opine that it is more unlikely that Pharmaniaga would be required to supply a large amount of Covid-19 vaccines in one go. With that, we value Pharmaniaga at a lower PE multiple of 11.6x (at +0.5SD of its 5-year mean) on its FY22f EPS of 7.1sen. Our TP is subsequently lowered to RM0.83 (from RM1.13 previously), reiterate BUY on Pharmaniaga.

Source: Hong Leong Investment Bank Research - 23 May 2022