PETALING JAYA: The share price of Pharmaniaga Bhd recorded the strongest surge in 12 months led by temporary contract extension optimism, which Kenanga Research views as a “short-term reprieve” for the integrated pharmaceutical group.
The stock jumped 7.52% or 17 sen to RM2.43 yesterday, with nearly 1.42 million shares changing hands. Pharmaniaga’s intra-day high and low yesterday were recorded at RM2.62 and RM2.42, respectively.
The stronger buying interest among investors came following the government’s decision on Nov 8 to allow Pharmaniaga to continue procuring drugs and medical supplies for the next 25 months until a new concessionaire is appointed through open tender.
Recall that the government’s earlier announcement on Oct 31 to end Pharmaniaga’s exclusive and long-running drugs and medical supplies concession for the Health Ministry had dealt a blow to the company.
Its share price tumbled 11.6% on the same day, with about RM110mil in Pharmaniaga’s market value being wiped out in just two days following the announcement.
Equity analysts have also downgraded the stock, which is 56.1%-owned by government-linked BOUSTEAD HOLDINGS BHD.
Kenanga Research has revised Pharmaniaga’s rating downwards to “underperform”, while Hong Long Investment Bank Research has downgraded its view to a “hold”.
However, at yesterday’s share price of RM2.43, the company has recouped nearly 84% of its lost market value since Oct 31 and had a market capitalisation of RM635mil as of Nov 11.
In a note issued yesterday, Kenanga Research said it was “positively surprised” by the 25-month interim concession period until end-2021.
However, it said Pharmaniaga’s future seems uncertain beyond financial year 2021 (FY21), considering that the concession accounts for an estimated 50% of group revenue.
“Due to the fluidity of the news and this latest development, we have upgraded our FY20 net profit by 40%, taking into account a 20% increase in revenue.
“However, the target price is raised marginally from RM1.60 to RM1.85 based on a lowered nine times FY20 earnings per share (from 11.5 times previously), which is a -2.0 standard deviation below the five-year historical forward mean due to the cloudy earnings visibility beyond FY21, ” stated the research house, which has maintained its “underperform” call.
Kenanga Research also pointed out that Pharmaniaga’s low-margin contract for logistics and the distribution of medicines was renewed by the government for an additional five years. The contract will be effective from Dec 1 and be based on Pharmaniaga’s capabilities and performance.
“We highlight here that the profit-before-tax margin for (Pharmaniaga’s) logistics and distribution segment is razor-thin, averaging at 0.8% over the past 13 quarters.
“We believe the contract extension for logistical support lies in Pharmaniaga’s capability in the development of a procurement and logistical computerised system, namely, the Pharmacy Information System (PHIS).
“PHIS play a vital and integral role in ensuring the distribution of drugs to patients and effective management of stock levels, ” it said.
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