Positive long-term outlook despite 1Q miss
? 1Q22 results were a miss due to weak filled-and-finished vaccine sales.
? Longer term prospects are promising with CA extension and biopharma entry.
? Reiterate Add, with a lower TP of RM0.79 (15x CY23F P/E).
1Q22 earnings missed on weak filled-and-finished vaccine sales
Pharmaniaga’s (PHRM) 1Q22 core net profit climbed 21.1% yoy to RM30m on better manufacturing, logistics & distribution (L&D) and Indonesia earnings. Qoq, it plunged 70.2% on weaker manufacturing and L&D profits. While 1Q22 core EPS formed 30%/ 32% of our/Bloomberg consensus’ FY22F estimates, we deem this as below, due to lower-than-expected contribution from the supply of filled-and-finished Sinovac Covid-19 vaccines (SV); 2H earnings tend to be much weaker hoh historically. 1Q22 DPS of 0.8 sen (1Q21: 0.8 sen) also tracked below our FY22F forecast of 5.4 sen.
Manufacturing sales up slightly yoy; SV sales volume plunged qoq
PHRM posted 1Q22 external manufacturing revenue of RM7m, up from < RM1m in 1Q21
likely due to SV sales, but down from RM33m in 4Q21 on much lower SV sales volume.
While PHRM did not disclose the number of doses delivered, CodeBlue’s 28 Mar report
stated that only 48k SV doses were sold from mid-Jan till mid-Mar 22 (vs. 2.2m doses in
Aug 21 till mid-Jan 22), which is tracking much lower vs. our projected 10m doses for
FY22F. We attribute this to the high vaccination rate; 83% of the population is fully
vaccinated as of 19 May. Thus, manufacturing PAT grew 3.7% yoy and slid 84.2% qoq.
Better L&D earnings yoy; signs of a turnaround at Indonesia unit
1Q22 L&D PAT rose 1.4% yoy on higher concession sales. It slipped 53.7% qoq despite
positive seasonality, possibly due to fewer deliveries of Covid-19 supplies (e.g. personal
protective equipment, medicines). Encouragingly, PHRM’s Indonesia operations turned
around to RM3.8m PAT (vs. sustained quarterly losses or small profits in at least the past
three years), thanks to inventory optimisation efforts and aggressive payment collection.
Vaccine & insulin manufacturing ventures to bear fruit from 2025F
We see manufacturing (declining SV contribution) and L&D (seasonally lower concession
orders) revenues tapering towards end-FY22F. However, PHRM’s longer term prospects
are supported by: i) a 10-year extension of its concession agreement (CA; to be finalised
by 3Q), and ii) its plans to set up a halal vaccine manufacturing facility by end-2024F,
plus a fill-and-finish facility for recombinant human insulin products/analogues by 2025F.
Reiterate Add with a lower TP of RM0.79 (15x CY23F P/E)
We cut FY22F core EPS by 34% after baking in lower SV sales and higher capex, partly
offset by higher L&D/Indonesia revenues. The latter, coupled with higher EBITDA margin
assumptions, lead to FY23F/24F core EPS being 12%/11% higher. We cut PHRM’s TP to
RM0.79, pegged to a more conservative 15x CY23F P/E (0.5 s.d. above 5-year mean,
owing to potential contribution from its biopharmaceutical ventures; previous: +1 s.d.).