The research house maintained its “underperform” rating on the pharmaceutical group and kept its target price of 31 sen, a 22.55% downside from its current price of 40 sen.
“We are positive on this latest development which is in line with our expectation that the concession is now formally signed and extended,” it said, noting there were scant details of the agreement.
The contract value was not disclosed as it said the information provided under the agreement needs to be kept fully confidential.
“However, we are mindful that the government is seeking better value-for-money contracts and Pharmaniaga might have to offer new rates that are more competitive,” it noted.
Kenanga also remained cautious on Pharmaniaga due to the negative shareholders’ equity of RM264 million as of Sept 30, 2023, impeding its ability to give out dividends.
The company announced yesterday its wholly-owned subsidiary Pharmaniaga Logistics Sdn Bhd entered into a concession agreement with MoH to undertake the procurement, storage, supply, and delivery of medical products to public sector customers.
The agreement takes effect retrospectively from July 1, 2023, and will remain in force until June 30, 2030, or subject to earlier termination.
Pharmaniaga was previously given a six-month interim extension (ending June 30, 2023) to its medical supply concession pending the finalisation of a new deal.
Pedestrian earnings growth
Kenanga also forecasts “pedestrian earnings growth” for the group in FY2024 at levels similar to pre-Covid, averaging RM40 million to RM60 million, driven by regular orders for medical supplies from the agreement.
“Pharmaniaga guided for no further provisions going forward. It has managed to sell some vaccines while still keeping some unsold ones,” it said.
It was classified as a Practice Note 17 (PN17) company since February last year after falling into losses following a RM552.3 million impairment related to unsold Covid-19 vaccines.
The group is 52%-owned by Boustead Holdings Bhd, in which the Armed Forces Fund Board (LTAT) controls a 97.6% stake after its recent takeover offer. LTAT also has a direct 8.6% stake in Pharmaniaga.
It posted a RM49 million net loss in its third quarter ended Sept 30, 2023 from a RM13.99 million net loss a year ago. Quarterly revenue was marginally lower at RM885.49 million from RM894.94 million last year.
Its shares closed flat at 40 sen, valuing the group at RM576 million.