INVESTMENT HIGHLIGHTS

• Pharmaniaga plays a key role in supply-chain management of medical products to government facilities nationwide

• Huge investment devoted over the years on the system and process improvement to adhere to the strict requirement of the concession agreement

• The Ministry of Health (MOH) has enjoyed huge savings from the company’s capability and efficiency in handling medical supplies

• Upgrade to BUY with a revised TP of RM2.45 per share

Scruitinising Pharmaniaga. We met with the management of Pharmaniaga to discuss the: (i) nature of the concession business whether or not it can be regarded as a monopoly; (ii) possibility of a renewal for its concession business and; (iii) the prospect of its nonconcession businesses. From the meeting, we conclude that: (i) Pharmaniaga’s role as a logistics and distribution of medical supplies is vital to all 148 government hospitals and 1,700 clinics nationwide; (ii) the barrier to entry into the concession business is very high and; (iii) the MOH has enjoyed huge savings from Pharmaniaga’s capability and efficiency.

The vendors are selected by MOH via open tender. Pharmaniaga’s concession business entails the logistics and distribution of 750 items listed under MOH’s approved product purchase list (APPL). Under the concession agreement, the company is required to organise tender exercises that involve all prospective vendors. Nonetheless, the company is not involved in the selection of vendors as this is managed by the MOH. The company is allowed to submit its own bid to supply the products but their tender documents need to be submitted twoweeks in advance before the public call for tender. This ensures a level playing field to all other potential vendors. In fact, Pharmaniaga’s inhouse products only accounted about 27.0% of the concession business.

A supply chain management business. Upon appointment of the vendor by the MOH, Pharmaniaga is responsible to ensure timely delivery of the procured products to public hospitals and clinics.

Source: MIDF Research - 16 Apr 2019