Pharmaniaga Berhad recently announced a sharp drop in earnings by -94.7%yoy and – 97.4%qoq to RM722,000. Cumulatively for the first half, earnings declined by -22.8%yoy to RM28.5m; which came in below expectations at 30% of MIDF’s yearly earnings estimates, and at 52% of consensus’.
The lower revenue in comparison with a year prior corresponded to the shift into a Covid19 endemic phase. Additionally, Pharma reported lower sales from its non-concession segment due to the timing of orders from MOH on products under the tender business. Meanwhile, Indonesia dragged the revenue further due to festive seasons during the reporting quarter, although mitigated by an improvement in efficiency in its operations and sales. Nevertheless, the group recorded robust growth in the concession segment attributed to additional products being listed in the list, and improved contribution from the private sector by +30% from increased promotional marketing efforts.
This segment’s revenue slipped – 12.6%yoy and -24.4%qoq to RM534.6m, while earnings lost >100% to a deficit of -RM10.5m, from a loss of -RM1.1m in 2QFY22 and a profit of RM30.7m in 1QFY22. For the cumulative first half, revenue rose up by +3.2%yoy to RM1.24b, while earnings dropped by -5.9%yoy to RM20.2m. This was mainly attributable to higher operating expenses, offset by stronger contributions from the concession business on the back of (i) additional products in the concession list, (ii) higher demand of inhouse products from MOH, and (iii) higher sales from increased advertising and promotional activities.
Pharmaniaga remains cautious yet positive of its prospects; taking into consideration various market uncertainties impacting the global economy such as the rise in raw material prices and increased interest rates. Risks and challenges. While the uncertain results of the marketing strategies are a challenge on their own in the near term, drug security remains a major concern for Pharmaniaga and the subsector as a whole. Revised FY23-24 earnings estimates. In consideration of these situations. MIDF revises its earnings estimates for FY23 and FY24 downwards by -61% and -46% respectively.
As such, MIDF reduces the target price to RM0.87 (previously RM0.97) based on pegging a PER of 14x to the revised EPS23 of 6.3sen. The research house maintains a buy call on Pharmaniaga with the revised target price of RM0.87.
