Kenanga gives Pharmaniaga Outperform call
Pharmaniaga benefits from being the sole concession holder to purchase, store, supply and distribute approved drugs and medical products to 148 government hospitals and 1,400 clinics and district offices nationwide.
KUALA LUMPUR: Kenanga Research has initiated coverage of Pharmaniaga with an Outperform call, setting the target price at RM5.35 based on 14.5 times FY15 earnings per share for the stock which closed yesterday’s trading at RM4.60.
It noted that Pharmaniaga, a GLC-linked company, is the sole concession holder to purchase, store, supply and distribute approved drugs and medical products to 148 government hospitals and 1,400 clinics and district offices nationwide.
Kenanga said it liked Pharmaniaga for three reasons:
1) its defensive earnings being the prime beneficiary as the sole concession holder to Government hospitals and clinics nationwide,
2) its growth exposure in the healthcare and pharmaceuticals industry supported by an ageing population, and
3) decent dividend yield of 4.8%.
Pharmaniaga’s concession agreement ends in 2019, but in the meantime allows for an upward revision in prices every three years, with the last revision back in 2011.
According to the research house, the pharmaceutical sector in Malaysia has over the past decade grown at an annual rate of 8% to 10%. And now the stage is set for explosive growth, thanks to the Government’s Economic Transformation Programme which is expected deliver a 22% growth rate that will deliver RM16.6bil GNI (gross national income) by 2020, driven by higher exports of generic pharmaceuticals and enhanced generics.
Kenanga expects Pharmaniaga's manufacturing division to propel its earnings in the longer term as the group aims to add about 200 new products over the next 10 years to its existing portfolio of around 500 products.
“This should boost demand for its products and lift earnings. Additionally, its small volume injectables (SVI) will benefit from the expiration of patents of well-known drugs or better known as "patent cliff".
Technically, the patent cliff will allow generic drug makers such as Pharmaniaga to enter once-protected segments of the pharmaceutical market via the introduction of generic versions of the patented drugs." it said.
Source: The Star