PETALING JAYA: Kenanga Investment Bank Bhd has kept its “underperform” call on Pharmaniaga Bhd as it remains cautious on the group’s prospects but expects the pharmaceutical group to bounce back to profitability in FY2024 on the back of its government concessions.
Pharmaniaga incurred its largest quarterly loss of RM664.39 million in the fourth quarter ended Dec 31, 2022 (Q4 FY2022) with a RM552.3 million impairment related to unsold Covid-19 vaccines, triggering its classification as a Practice Note 17 (PN17) status company.
It posted a RM49 million net loss in the latest third quarter ended Sept 30 (Q3 FY2023) on write-offs for slow-moving expiring inventories namely personal protective equipment and needles (RM65 million), and product development costs (RM7.6 million).
On prospects for FY2024, Kenanga projected Pharmaniaga to post around RM40 million to RM60 million net profit, similar to its pre-Covid-19 level, driven by orders for medical supplies from its seven ministry of health concessions to provide medical supplies to public hospitals.
“Pharmaniaga guided for no further provisions going forward. It still keeps some unsold vaccines (that is fully provided for) and has managed to sell some,” said Kenanga, referring to a recent briefing by Pharmaniaga.
It is also building four new warehouses, being part of a RM220 million capex plan to be funded with proceeds from a rights issue and a private placement of new shares.
“This is to meet the requirement in relation to the government concessions to provide timely delivery of drugs and non-drugs products to government facilities throughout the country,” Kenanga said in a note today.
Kenanga reiterated its “underperform” recommendation with an unchanged target price of 31 sen. It remains cautious on Pharmaniaga’s prospects due to its negative shareholders’ equity of RM264 million (as at end-September), which hampers its ability to pay dividends.
Addressing its PN17 status
Pharmaniaga recently proposed a capital reduction and cancellation of RM180 million issued share capital, and a rights issue of 1.18 billion new shares and 1.18 billion free warrants on the basis of four rights shares for every five existing shares, and one warrant for every rights share.
It is also proposing a private placement of 714 million new shares or 26.9% of the enlarged issued share capital after the proposed rights issue. These initiatives are part of its efforts to address its PN17 status.
Boustead Holdings Bhd (BHB) has a 52% stake in Pharmaniaga. BHB is in turn controlled by the Armed Forces Fund Board (LTAT) via its 97.6% stake after a recent takeover offer. LTAT also holds a direct stake of 8.6% in Pharmaniaga.
At 3.40pm, Pharmaniaga’s shares were up half-a-sen or 1.5% at 33 sen, valuing the group at RM475.6 million.