Kenanga Research expects Pharmaniaga to make a recovery and post earnings at a level before Covid.
PETALING JAYA: Pharmaniaga Bhd
is expected to see earnings growth in its financial year ending Dec 31, 2024 (FY24), reaching pre-Covid levels and averaging between RM40mil and RM60mil.
The Practice Note 17 (PN17) pharmaceuticals group reported a net loss of RM607.32mil in its FY22, while for the nine months ended Sept 30, 2023 (9M23), it recorded a net loss of RM44.73mil.
Kenanga Research, however, expects Pharmaniaga to make a recovery and post earnings at a level before Covid, driven by regular orders for medical supplies from its Health Ministry concession.
Following a meeting with Pharmaniaga, the research house nevertheless expressed caution regarding the group’s outlook.
This cautious stance stems from the negative shareholder equity of RM264mil as of Sept 30, 2023, hindering the company’s ability to distribute dividends.
Additionally, with the government now seeking better value-for-money contracts, Pharmaniaga might need to consider offering more competitive rates, the research house said.
Kenanga Research highlighted that Pharmaniaga has many plans but is short of capital.
“Pharmaniaga offered guidance that there will be no further provisions going forward. It still keeps some unsold vaccines (which have been fully provided for) and has managed to sell some,” the research house noted in its report on the company.
The research house, however, noted that Pharmaniaga is hopeful of exiting its PN17 status by the end of next year.
Last week, Pharmaniaga proposed a regularisation plan to raise up to RM655mil to bolster its financial position and exit its PN17 status.
The company’s proposed regularisation plan entailed a proposed capital reduction, rights issue with warrants and private placement.
As part of a RM220mil capital expenditure plan, to be funded with proceeds from the rights issue and the private placement of new shares, Pharmaniaga plans to construct four new warehouses.
“This is to meet the requirement in relation to the government concession to provide timely delivery of drugs and non-drug products to government facilities throughout the country,” Kenanga Research said.
In the biopharmaceutical space, the research house said Pharmaniaga is establishing manufacturing facilities for vaccines and insulin to address the increasing needs in these therapeutic areas.
“The project is on track for commercialisation of vaccines in 2025 and insulin in 2026. It will produce recombinant human insulin and analogue insulin,” Kenanga Research added.
On its Indonesian operation, Pharmaniaga offered guidance for positive prospects as the company expects the operations there to remain profitable in 4Q23, having already achieved a 9M23 profit before tax of RM7.2mil driven by operational-efficiency gains through on-going inventory-optimisation efforts and aggressive payment collection.
“Specifically, it has managed to keep tabs on fast-moving stock keeping units and reduce slow-moving stocks and lowering working capital requirements,” the brokerage noted.
Kenanga Research has reiterated an “underperform” rating on Pharmaniaga and maintained its target price of 31 sen per share for the stock.
