Period

3Q15/9M15

Actual vs. Expectations

9M15 PATAMI of RM69m (+21% YoY) came in at 69% and 65% of our and market consensus fullyear forecast, respectively. We consider the results to be within our expectation on the back of a seasonally stronger 4Q.

Dividends

A third interim single tier DPS of 9.0 sen was declared, bringing 9M15 payout to 23.0 sen, which is within our expectation. Key Result

Highlights

QoQ, 3Q15 revenue rose 2.0% due to contributions from the concession business as well as from its Indonesian operations. PBT rose 1.0% to RM25.3m despite amortization of Pharmacy Information System (PhIS) and transportation costs, reduced overhead expenses such as marketing and promotion costs. This brings 3Q15 PATAMI to RM20m (+23% QoQ) boosted by a higher effective tax rate of 21% compared to 34%in 2Q15.

YoY, 9M15 net profit rose 21% to RM69m despite a flattish turnover due largely to lower effective tax rate of 23% compared to 34% in 9M14. PBT rose slightly by 1.4% to RM63.7m due largely to favourable profit margins from the Manufacturing Division (31.1% in 9M15 vs. 29.5% in 9M14) as a result of continuous cost optimisation initiatives, which led to reduced manufacturing costs. This included batch consolidation, enhanced procurement exercises and increased production yields through utilisation of innovative methods. However, this was negated by higher amortization of the Pharmacy Information System.

Outlook

Pharmaniaga is a prime beneficiary of being the sole concession holder to purchase, store, supply and distribute approved drugs and medical products to 148 government hospitals and 1,400 clinics and district offices nationwide. The concession agreement ends in 2019 and allows for upwards revision in prices every three years.

Change to Forecasts

No changes to our earnings forecasts.

Rating & Valuation

Maintain Outperform. Maintain our TP of RM6.95 based on unchanged 16.5x FY16E EPS. We like Pharmaniaga for: (i) its defensive earnings being the sole concession holder to purchase, store, supplies and distribute approved drugs and medical products to Government hospitals and clinics nationwide, (ii) its exposure in the growing healthcare and pharmaceuticals industry which is supported by an ageing population, and (iii) decent dividend yield of 4.6%.

Risks to Our Call

Lower-than-expected volume sales.

Source: Kenanga Research - 27 Nov 2015