1QFY22 PATAMI of RM28m (-68% QoQ; +20% YoY) came above our expectation hitting 30% of full-year estimate but in line with consensus forecasts at 25%. The variance on our side was due to better-than-expected performance in Indonesia. This prompts us to raise our FY22E net profit by 9%. However, we conservatively nudged down our TP from RM0.77 to RM0.71 based on 12x FY23E EPS. Reiterate MARKET PERFORM.

Results’ highlights. QoQ, 1QFY22 top-line rose 35% due to improved performance, attributable to healthy growth across the Group's concession and Indonesia businesses as a result of strong demand from customers subsequent to the resumption of normal business activities post COVID-19 pandemic. However, the Group's PBT declined 70% to RM37m mainly attributable to lower contribution from the sales of the Sinovac COVID-19 vaccine. This brings 1QFY22 PATAMI to RM28m (-68%). A 1st interim dividend of 0.8 sen was declared which is in line with our expectation.

YoY, 1QFY22 revenue rose 21% attributable to healthy growth across the Group's concession and Indonesian businesses as a result of strong demand from customers subsequent to the resumption of normal business activities post pandemic. 1QFY22 PBT rose 19% due to Indonesia operation registering a PBT of RM3m in 1QFY22 compared to LBT of RM1m in 1QFY21 primarily due to the positive effects of effective reorganisation of the business to enhance operational efficiency through ongoing stock optimisation exercise and aggressive payment collection. This brings 1QFY22 PATAMI to RM28m (+19% YoY) due to a lower effective tax rate of 23% in 1QFY22 vs. 28% in 1QFY21.

Outlook. Despite recording bumper profits in FY21, we do not expect FY22E to chalk up positive net profit growth going forward since most of the vaccines delivery has been completed. Leveraging on the experience and expertise in manufacturing fill and finish of the Sinovac COVID-19 vaccine, the Group intends to export the vaccine to countries such as Indonesia, Philippines, Cambodia, Thailand and several African nations, that are facing vaccine supply shortages. Pharmaniaga is actively negotiating with Sinovac Biotech Ltd to secure a deal to allow the Group to speed up the supply of vaccines to these countries. The Group is in the midst of finalising the logistics and distribution contract extension agreement with the Ministry of Health Malaysia, slated to be completed by 3Q 2022. Going forward, the Group is strengthening its business footprint in Indonesia as it has huge untapped potential. The Group will revamp the current business model of its logistics and distribution arm, PT. Millennium Pharmacon International Tbk and increase the products portfolio of its manufacturing arm, PT Errita Pharma. In Indonesia, the division has successfully staged a swift turnaround, highlighting the effectiveness of the reorganisation of the Indonesian business to enhance its operational efficiency through an ongoing stock optimisation exercise and aggressive payment collection.

We raise our FY22E net profit by 9% due to the better-than-expected results. We leave our FY23E earnings unchanged.

Reiterate MP. However, due to the negative earnings growth forecast, we conservatively lowered our TP from RM0.77 to RM0.71 based on 12x FY23E EPS (previously 13x) (-0.5SD below its 5-year historical forward mean). Net gearing as at 31 Mar 2022 is at 1.97x. The saving grace is a 5.3% dividend yield.

Key risk is lower-than-expected volume sales and risk of concession not extended

Source: Kenanga Research - 23 May 2022