Art of Investments


Publish date: Tue, 07 Jun 2022, 08:50 AM

Results season has just ended. One company that really caught my eye was MGRC.

On 23 June 2022, MGRC reported their highest ever quarterly profit. Their profit has been growing very significantly for the past 3 quarters as shown below. 

How did they achieve this? This was done by scaling down the distribution and administration of Sinovac Covid vaccines (peaked in 1st quarter results which shows a net profit margin of 2%) and ramping up the Chimeric Antigen Receptor T-cell (CAR T-cell) immunotherapy business.

What does MGRC do?

Many would be familiar with their previous business Mpath which was sold for RM42 million. From this sale, a special dividend of RM0.22 was distributed to shareholders. After the sale, MGRC ventured into the CAR T-cell immunotherapy business. What is CAR T-cell immunotherapy? It is a last-resort cancer treatment that has been developed over the last decade. When chemotherapy and radiotherapy fails, CAR T-cell therapy is used by those who can afford them and this therapy gives a survival rate of around 40%. This survival rate is fairly high given that the traditional methods such as chemo and radio does not work. Usually when both these methods do not work, cancer patients would die very quickly. As such, the CAR T-cell therapy has been gaining significant traction among the rich.

Why only the rich and why is MGRC in a very unique position? In the US, CAR T-cell therapies cost around USD400k - 450k. This eliminates the majority of cancer patients as most cannot afford such a treatment. However, in the circular released by MGRC during their EGM, it is mentioned that MGRC is able to sell CAR T-cells at around USD50k. This is still expensive and beyond the reach of a significant number of people in the markets MGRC serves (Malaysia, Singapore, Brunei, Indonesia, Thailand, Vietnam, Cambodia, Laos) but is now within the rich of the upper-middle class and upper class at USD50k.

What is CAR-T cell? With this therapy, T-cells (cells that are produced by the body to fight infections) are extracted from the body and re-engineered in a lab to produce CAR T-cells which is able to attack cancer cells. These re-engineered CAR T-cells are re-injected into the cancer patients. For the past 2 quarters, while waiting for government approval for their own lab, MGRC had outsourced the production of the CAR T-cells to labs in foreign countries as there are no labs in Malaysia which produces it. This caused long waiting times and high costs. In this quarter's results report, MGRC mentioned that they have finally obtained approval for their lab from National Pharmaceutical Regulatory Agency. This will result in an even higher profit as they can supply more CAR-T cells due to the reduction in waiting times and also avoid the cost of outsourcing. This was what management mentioned in their prospects:


How to value MGRC? There was only 1 direct comparable in this world and it was Kite Pharma Inc. from the United States. Kite Pharma holds US FDA approvals for 2 out of 6 approved CAR T-cell therapies in the US. Kite Pharma was acquired by Gilead in 2017 for USD11.9 billion in 2017! In 2016, Kite Pharma only had a revenue of USD22 million and was on track to double to USD40 million in 2017. When Kite Pharma was acquired, they were still loss-making. If Kite Pharma can be acquired for USD11.9 billion with only a revenue of USD40 million while still loss-making, imagine what the valuation of MGRC's CAR T-cell business will be!  Kite Pharma was acquired at a Price/Sales ratio of 297x!! 

At a Price/Sales ratio of 297x, MGRC will be valued at RM47.90. But this is very unrealistic and we should not look to use this ratio even though this was what happened in 2017 with Kite Pharma. It would be more realistic to use Duopharma as a comparable as they also manufacture very unique healthcare products. Duopharma derives a very significant amount of revenue and profit from the production of their own insulin. At Duopharma's current PE multiple of 19.5x and annualising MGRC's latest quarter's profit (although profit for the next few quarters should actually be significantly higher due to the commencement of their own lab), MGRC should be valued at RM1.25. This is 79% higher than the share price of RM0.70 now. It is a matter of time before the share price reflects the immense potential of MGRC's CAR T-cell business. 

UPDATE: I am so glad that people who read this and bought at RM0.70 are making a nice amount of money. MGRC recently announced a proposed private placement to fund "future investment opportunities". This is a bad game-changer and I would advise investors to take profit. As you would know, this company is linked to a syndicate stock by the name of Bintai Kinden. While I was hoping that MGRC would not follow in the footsteps of Bintai Kinden, the same playbook seems to be happening here where they raise money for unknown purposes. Obviously MGRC is just exploiting the meteoric rise in share price to raise money. MGRC should instead focus on generating large cashflows from their CAR T-cell business and using that cashflow to pay substantial dividends while keeping a small portion for investments. But this does not look like the case. For those who bought at RM0.70 or lower, you would be making a very handsome gain of at least 35% at today's price of RM0.95 and you should take profit.

Related Stocks
Market Buzz