Kenanga Investment Bank analyst Raymond Choo and Hong Leong Investment Bank’s Sophie Chua agree that the funds raised will only be adequate to support the group’s working capital, and will not reverse its PN17 status.

Pharmaniaga slipped into PN17 status on Feb 27 this year after booking provisions of RM552.3 million for unsold Covid-19 vaccines, which resulted in negative equity on its balance sheet.

PN17 is a category used by Bursa Malaysia to denote financially-troubled companies.

“Based on an indicative issue price of 34 sen per share, the proposed private placement is expected to raise RM45 million which is earmarked for working capital,” said Choo.

The RM45 million proceeds will marginally improve Pharmaniaga’s net debt, reducing it from RM1.19 billion as of March 31, 2023, to RM1.15 billion.

The exercise is expected to dilute earnings per share by around 11%, after taking into account the private placement and employees’ share option schemes.

“Post-exercise, our target price (TP) will also be lowered to 26 sen,” said Chua.

“Overall, we are still positive on this development as we reckon that this is a more viable move for Pharmaniaga than to raise funds via borrowings given the high interest costs on borrowings is likely to weigh down on its profitability,” she said.

Only a stop-gap measure

While the exercise is a positive development for the group, Pharmaniaga still has a negative shareholders’ equity of RM143 million as of March 31, 2023, which would impede the group’s ability to pay out dividends.

“We are neutral on this latest corporate move by Pharmaniaga as it is just a stop-gap measure while finding a holistic solution to lift it out of the PN17 status,” said Choo.

Kenanga reiterated their “underperform” call on the stock with a TP of 33 sen.

Meanwhile, Hong Leong retained their “sell” call with an unchanged TP of 30 sen.

As at 2.30pm, Pharmaniaga’s share price dropped 2.63% or 1 sen to 37 sen, giving it a market capitalisation of RM484.78 million.