Health and Pharmaceutical Sector in Malaysia

Title: Pharmaniaga to gain from growth in biotech sector
Date: 10-Jan-2005

(6 January 2005 - The Star)

PHARMANIAGA Bhd, one of Malaysia's largest integrated healthcare players, is well poised to take advantage of the vibrant growth in the pharmaceutical industry as well as the spillover effects from the growth in the biotech and medical tourism industries this year.

Given the group's bright prospects, analysts are recommending a "buy" on the stock with a 12-month target price of between RM5.95 and RM6.46 per share.

MIDF Sisma Securities in its recent research notes said Pharmaniaga's capacity for growth was unquestionable in view of the industry's potential and continuous efforts to enhance shareholder value via steady dividend payouts.

"We believe the company is making good progress by shifting its earnings dependence away from government concessions," MIDF Sisma Securities said.

The Pharmaniaga group currently receives a steady income from a 14-year concession with the Health Ministry. Its strategies to beef up private sector business include aggressive expansion abroad, identifying new products and adopting new technologies, and research and development collaborations.

Although Pharmaniaga's management was optimistic of a renewal when the government concession expired in 2009, the research unit said the group had taken measures to reduce its low-margin government concession business.

"Its sustained earnings growth last year was boosted by strong export revenue thanks to an aggressive stance to expand to developing countries like Asia, Africa and the Middle East" added the research unit.

MIDF Sisma Securities said over the past four years, Pharmaniaga had managed to sustain revenue growth at a commendable compounded annual growth rate (CAGR) of 15.4%.

Its pre-tax and net profits' track record are equally admirable, growing at CAGRs of 17.1% and 8.3% respectively.

An analyst with a local stockbroking firm said: "Pharmaniaga's stock price has appreciated more than two-fold since it was listed in 1999."

The stock closed at RM5.40 yesterday, 14% below its RM6.30 historical high in March last year.

It has managed to hold above the RM5 support level for the past 18 months.

"The group's new business shift has begun to bear fruit as reflected in its third quarter earnings - the highest ever posted," the analyst said.

For the first nine months ended September 2004, Pharmaniaga's net profit increased 20% year-on-year to RM37.5mil.

Its turnover grew almost 30% to RM599mil for the same period.

Earnings growth is expected to continue expanding between 8% and 10% annually in the next five years in line with the industry growth. Analysts however, cautioned that Pharmaniaga faces pricing competition from China and India, which have the advantage of cheaper costs.

"The Malaysian pharmaceutical industry is among the easiest for foreign companies to penetrate as there are no import duties imposed on imported products.

"In comparison, many countries restrict Malaysian pharmaceutical products via non-tariff barriers such as different labelling requirements on top of already prescribed tariffs," an analyst said.

Meanwhile, on Pharmaniaga's tender offer for the remaining 45% stake in Indonesia's Millenium Pharmacon International, an analyst with SBB Securities said: "We are positive on the acquisition as Millenium's activities would complement Pharmaniaga's core businesses."

The tender offer follows Pharmaniaga's acquisition of a 55% stake in Millenium from former controlling shareholder PT Tigamitra Multikarya three months ago.

SBB Securities in its lastest report on the company said: "Any future acquisitions either locally or abroad will be viewed positively as Pharmaniaga spreads its risk and will not be overly reliant on government concessions."


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