PHARMA (7081) : Pharmaniaga Bhd - Dividend surprise in 3Q
Target RM6.15 (Stock Rating: ADD)
Pharmaniaga’s 9M14 net profit was a tad below expectation, accounting for only 70% of our full-year forecast and 66% of consensus. The disappointment came from weaker-than-expected logistics earnings and high tax expenses. But all is not lost as it declared a DPS of 8 sen, bringing YTD DPS to 16 sen. We had projected only 19 sen for the full year. We scale down our FY14-16 EPS by 2-17% for weaker logistics profit. Thus, our target price drops to RM6.15, based on its historical 3-year average P/E of 16x, but we raise our FY14 DPS to 20 sen. The stock remains an Add as it still offers close to 40% upside. The positive dividend surprise and a stronger 4Q are potential re-rating catalysts.
Key results highlights
Pharmaniaga’s 3Q net profit quadrupled to RM15m relative to last year, helped by higher manufacturing earnings and a turnaround in its logistics division. Manufacturing EBIT rose 52% yoy to RM23m on higher sales, while logistics turned in a profit of RM5m against a loss of RM3m a year ago due to lower provision for doubtful debts. The effective tax rate for 9M14 stood at 34% due mainly to the incurrence of non-tax deductible expenses. We believe that these include the RM11m amortisation expense on the Pharmacy Information System that the group installed in the Ministry of Health’s hospitals. This amortisation expense is charged to its logistics division.
Expect a strong 4Q
Despite the weaker-than-anticipated results, we still expect a stronger 4Q as sales in the final quarter of the year are typically higher. On top of that, Pharmaniaga had about RM10m of unrealised earnings from its manufacturing division at end-Sep as its logistics division has yet to distribute its in-house products to third-party customers. Nonetheless, we cut FY14 EPS by 2% to account for lower logistics earnings and higher tax expenses.
Roll forward our target price
Our target price is derived using 16x CY16 P/E. We had previously attached a 20% premium over the target price multiple to account for its strong 3-year earnings CAGR of 28%. As we roll forward our target price, the premium is removed since the growth has been reflected in its FY16 earnings. We continue to like Pharmaniaga for its solid earnings growth prospects. It also offers an attractive dividend yield of 4.4%.
Source: CIMB Daybreak - 24 November 2014
Target RM6.15 (Stock Rating: ADD)
Pharmaniaga’s 9M14 net profit was a tad below expectation, accounting for only 70% of our full-year forecast and 66% of consensus. The disappointment came from weaker-than-expected logistics earnings and high tax expenses. But all is not lost as it declared a DPS of 8 sen, bringing YTD DPS to 16 sen. We had projected only 19 sen for the full year. We scale down our FY14-16 EPS by 2-17% for weaker logistics profit. Thus, our target price drops to RM6.15, based on its historical 3-year average P/E of 16x, but we raise our FY14 DPS to 20 sen. The stock remains an Add as it still offers close to 40% upside. The positive dividend surprise and a stronger 4Q are potential re-rating catalysts.
Key results highlights
Pharmaniaga’s 3Q net profit quadrupled to RM15m relative to last year, helped by higher manufacturing earnings and a turnaround in its logistics division. Manufacturing EBIT rose 52% yoy to RM23m on higher sales, while logistics turned in a profit of RM5m against a loss of RM3m a year ago due to lower provision for doubtful debts. The effective tax rate for 9M14 stood at 34% due mainly to the incurrence of non-tax deductible expenses. We believe that these include the RM11m amortisation expense on the Pharmacy Information System that the group installed in the Ministry of Health’s hospitals. This amortisation expense is charged to its logistics division.
Expect a strong 4Q
Despite the weaker-than-anticipated results, we still expect a stronger 4Q as sales in the final quarter of the year are typically higher. On top of that, Pharmaniaga had about RM10m of unrealised earnings from its manufacturing division at end-Sep as its logistics division has yet to distribute its in-house products to third-party customers. Nonetheless, we cut FY14 EPS by 2% to account for lower logistics earnings and higher tax expenses.
Roll forward our target price
Our target price is derived using 16x CY16 P/E. We had previously attached a 20% premium over the target price multiple to account for its strong 3-year earnings CAGR of 28%. As we roll forward our target price, the premium is removed since the growth has been reflected in its FY16 earnings. We continue to like Pharmaniaga for its solid earnings growth prospects. It also offers an attractive dividend yield of 4.4%.
Source: CIMB Daybreak - 24 November 2014
