Kenanga stays cautious on Pharmaniaga, reiterates ‘underperform’

KUALA LUMPUR: Kenanga Research has reiterated its cautious stand on Pharmaniaga Bhd after the pharmaceutical group announced it had inked a concession agreement with the government.

“We are positive on this latest development which is in line with our expectation that the concession is now formally signed and extended. There were scant details of the concession agreement.

“However, we are mindful that the government is seeking better value-for-money contracts and Pharmaniaga might have to offer new rates that are more competitive (of which we have reflected in our forecasts),” said the research firm.

In a filing with the stock exchange yesterday, Pharmaniaga said it was given a seven-year concession to undertake the procurement, storage, supply and delivery of medical products to offices and facilities within Malaysia operated and controlled by the Ministry of Health.

The agreement will take effect retrospectively from July 1, 2023, for a period of seven years until June 30, 2030, subject to an earlier termination.

Under the concession agreement, Pharmaniaga is also required to implement the Pharmacy Information System (PhiS) and Clinic Pharmacy System (CPS) maintenance, licence renewal, change request and system implementation at the new facilities based on existing operating cost rates.

Additionally, Pharmaniaga is required to build four new warehouses, being part of a RM220mil capex plan to be funded with proceeds from a rights issue and a private placement of new shares.

Kenanga projects pedestrian earnings growth for Pharmaniaga in FY24, similar to pre-Covid levels, averaging RM40-60mil driven by regular orders for medical supplies from MoH concessions.

Pharmaniaga has guided for no further provisions going forward, having managed to sell some vaccines while keeping some unsold ones that have been fully provided for.

“We remain cautious on Pharmaniaga due to the negative shareholders’ equity of RM264m as at Sept 30, 2023, impeding its ability to give out dividends,” said Kenanga.

It maintained “underperform” on the share with a target price of 31 sen.