Healthy underlying metrics & biopharma play
? We believe manufacturing revenue should be supported by ethical sales &
rising CHC demand in coming quarters, aided by new product launches.
? Rising input costs may pressure 2H22F margins. PHRM targets RM100m/
80m revenue p.a. from the vaccine/insulin facility once fully operational.
? Reiterate Add, with an unchanged TP of RM0.79 (15x CY23F P/E).
1Q22 results recap: yoy earnings growth on all fronts
? Pharmaniaga (PHRM) held its 1Q22 results briefing yesterday. 1Q22 core EPS rose
21.0% yoy (-70.2% qoq), driven by all segments. Concession revenue grew a robust
29.1% yoy (+53.2% qoq), chiefly due to the addition of new products into the Approved
Products Purchase List. Non-concession revenue rose a decent 2.8% yoy (+43.6%
qoq) owing to improved sales to the private sector (general practitioners and consumer
healthcare [CHC] products). Notably, 1Q22 CHC sales jumped 75% yoy. Meanwhile,
its Indonesia operations turned around yoy and qoq to a more meaningful PAT of
RM3.8m, thanks to inventory optimisation efforts and a normalisation in the funding
status of the Indonesian National Health Insurance Scheme; it was previously
underfunded and thus delayed payments to suppliers.
New product pipeline to support manufacturing revenue
? While we expect a small contribution from the supply of filled-and-finished Sinovac
Covid-19 vaccine in subsequent quarters, we believe manufacturing revenue will be
supported by resilient ethical sales to private/public sectors, as well as rising CHC
demand. To capitalise on the increasing demand, PHRM plans to launch 20 products
this year (12/8 pharmaceutical/CHC products). It also expects the improvements at its
Indonesia operations to be sustainable going forward, in line with our expectations.
PHRM expects to sign its new logistics & distribution (L&D) concession agreement
with the government by end-2022, which bodes well for L&D revenue.
Potential EBITDA margin pressure in 2H22F from rising input costs
? We gather that FY21 L&D EBITDA margin was higher than normal at 4.2% (FY20:
3.7%), mainly boosted by the distribution of Covid-19 vaccines and a higher mix of
private sector sales, which both carry relatively higher margins. While this may be
partially sustainable in the coming quarters, we have conservatively assumed FY22F
L&D EBITDA margin normalises to 3.5% (similar to FY20). Meanwhile, we think
PHRM’s EBITDA margin could possibly face some compression in 2H22F if the rise in
active pharmaceutical ingredient (API) prices and weakening RM/US$ is prolonged.
While it has limited room to pass on the incremental costs to the government, it can do
so for the private sector, while other mitigating initiatives include cost control, having at
least 3-6 months’ worth of API buffer inventory and diversifying its supplier base.
Targets RM180m p.a. revenue from vaccine & insulin production
? PHRM remains on track to complete the renovation of its halal vaccine and
recombinant human insulin manufacturing facilities by 3Q24. It aims to secure
regulatory approval for the new products (to be produced at the plants) by end-2024 or
in 2025, with targeted annual revenue contribution (local sales only) of RM100m/80m
for the vaccine/insulin facility once fully operational (likely from FY25F/26F).
Reiterate Add and TP of RM0.79 (15x CY23F P/E)
? As there were no major surprises from the briefing, we retain PHRM’s forecasts and
TP of RM0.79, still pegged to 15x CY23F P/E (0.5 s.d. above 5-year mean, owing to
potential contribution from its biopharmaceutical ventures). Re-rating catalysts: Decent
FY23-24F earnings growth, longer-term earnings contribution from PHRM’s entry into
the manufacturing of biopharmaceuticals (vaccines and insulin). Downside risks: soft
pharmaceutical demand, high input costs, more onerous compliance requirements or
lower revenues/margins for its new L&D concession agreement with the government.