9MFY21 PATAMI of RM87m (+156% YoY) came above expectations at 150%/130% of our/consensus forecast. The variance on our side was due to better-than-expected vaccines sales. Hence, we raise FY21E/FY22E net profit forecast by 89%/51% and TP from RM0.54 to RM0.85 based on 15x FY22E EPS. Upgrade from UNDERPERFORM to MARKET PERFORM.

Results’ highlights. QoQ, 3QFY21 top-line rose 81% due largely to sales of the Sinovac COVID-19 vaccine to the Government and private sector. PBT margin rose by from 2% to 5% due to the normalised selling and distribution expenses incurred on the frequent delivery of Sinovac COVID-19 vaccine. This brought 3QFY21 PATAMI higher by 263% to RM50m which more than offset a higher effective tax rate of 49% compared to 38% in 2QFY21. A 3rd interim dividend of 2.0 sen was declared, bringing 9MFY21 DPS to 4.3 sen which is above our expectation.

YoY, 9MFY21 revenue rose 96% due to strong demand from the concession business and sales of Sinovac COVID-19 vaccine to the government. The Logistics and Distribution division recorded a lower PBT of RM33m (-21%) as demand for personal protective equipment including ventilators normalised. The Manufacturing division turned in a PBT of RM122m (+805%) mainly contributed by the Sinovac COVID-19 vaccine. This brings 9MFY21 PATAMI to RM87m (+156%).

Outlook. Despite recording bumper profits in 3QFY21, we do not expect sequential 4QFY21 net profit growth since most of the vaccines delivery were completed in 3QCY21. The majority of Sinovac recipients received their second dose between June and September. As such, the requirement for a booster shot will could potentially start from December onwards. Pharmaniaga had previously supplied more than 22m doses of Sinovac vaccine to MOH and the private sector and ready to supply up to 10m doses. Thus, there are about 11m Sinovac recipients requiring the booster shot. The group is currently in talks with Sinovac Biotech to supply vaccines to neighbouring countries via their fill-and-finish facility. We understand that Malaysia is one of five countries (including Turkey, Brazil, Egypt, and Indonesia) outside of China that has been authorised to conduct fill-and-finish for Sinovac. Specifically, Pharmaniaga marked its maiden entrance into the vaccine international market by successfully exporting the first batch of Sinovac filled and finished Covid-19 vaccine to Myanmar with an initial order of 200,000 doses. We highlight that earnings visibility could also come from the possibility that Sinovac vaccines are approved as booster shots and for adolescent use, likely in 1H22. We are factoring in concession extension beyond the interim extended concession period from 1st Dec 2019 to 31st Dec 2021 for procurement of drugs to ensure no supply chain disruption in the supply and distribution of medicines nationwide in view of Pharmaniaga’s infrastructure setup via computerised system i.e. Pharmacy Information System (PHIS) which is an integral role in ensuring the distribution of drugs to patients and effective management of stock levels. The group highlight that a series of discussions and negotiations for the renewal of the concession has been carried out and the outcome is very positive.

We raise our FY21E/FY22E net profit by 89%/51% due to better-than- expected vaccines sales and concession extension.

Upgrade from UP to MP. Correspondingly, we raise our TP from RM0.54 to RM0.85 based on 15x FY22E EPS (-0.5SD below its 5-year historical forward mean). We raise our PER from 14x to 15x to reflect better earnings visibility ahead and 5.9% dividend yield is a plus point. Key risk is lower-than-expected volume sales and risk of concession not extended.

Source: Kenanga Research - 22 Nov 2021