PHARMA has proposed to undertake a private placement of up to 10% of its total issued shares. The exercise will not lift it out of the PN17 status but the proceeds raised will help to fund its working capital while it formulates a plan to regularise its financial condition. Pending the completion of the exercise, we maintain our forecasts, TP of RM0.33 and UNDERPERFORM call.

PHARMA announced a private placement of up to 131m new shares or 10% of its total issued shares to third-party investors at an issue price to be determined later. The proposed private placement is expected to be completed by 3QCY23. For illustration purposes, based on an indicative issue price of RM0.34/share; (i) the proposed private placement is expected to raise RM45m which is earmarked for working capital; (ii) the RM45m proceeds will marginally improve PHARMA net debt of RM1.19b as at 31 Mar 2023 to a net debt of RM1.15b; and (iii) the exercise is expected to dilute FY23F EPS by about 6%.

We are neutral on this latest corporate move by PHARMA as it is just a stop-gap measure while finding a holistic solution to lift it out of the PN17 status.

Outlook. The group is confident of its future prospects amid its strategic plan to recover from the PN17 classification and is currently formulating a regularisation plan. We project pedestrian earnings growth in FY23 at level similar to pre-COVID, averaging RM40m RM60m driven by regular orders for medical supplies from the Ministry of Health concession.

Forecasts. Maintained pending the completion of the exercise.

Similarly, we keep our TP of RM0.33 based on 9x FY24F EPS, at a 35% discount to peers’ average due to its smaller market capitalisation. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3).

We are cautious due to: (i) the negative shareholders’ equity of RM143m as at 31 Mar 2023 impeding its ability to frank out dividends, and (ii) the government seeking better value-for-money contracts and PHARMA might have to offer new rates that are more competitive (which we have reflected in our forecasts). Reiterate UNDERPERFORM.

Key risks to our call include: (i) appointment of new concessionaires by the government, (ii) its PN17 regularisation plan being less dilutive to existing shareholders, and (iii) privatisation at a significant premium to the current market price.

Source: Kenanga Research - 14 Jun 2023