PHARMA (7081) - Pharmaniaga Bhd - Phantastic 4Q
Target RM5.85 (Stock Rating: ADD)
Pharmaniaga's FY14 net profit beat our forecast by 18% and consensus by 13%. The outperformance was due mainly to a lower effective tax rate and stronger-than-expected earnings from its logistics division. Another positive surprise was the final DPS of 12 sen, which brings its YTD DPS to 28 sen. We had projected only 20 sen for the full year. We raise our FY15-16 EPS by 1-14% to account for stronger contribution from its logistics division. We retain our valuation basis (3-year average P/E), but our target price drops to RM5.85 as we lower the target P/E multiple to 15.1x from 16x to reflect its latest 3-year average P/E. The stock remains an Add. The strong 4Q results and future earnings growth are the key potential re-rating catalysts.
Key highlights
A lower effective tax rate and better performance from the logistic division boosted Pharmaniaga’s 4Q14 net profit by 76% yoy to RM37m. Its effective tax rate was only 1% in 4Q due mainly to the recognition of deferred tax assets. Its pretax profit (PBT) rose 15% to RM38m on the back of better logistics contribution. Pharmaniaga’s logistics PBT rose 77% to RM19m and it attributed this better performance to higher revenue and lower provision for doubtful debts. However, its manufacturing PBT shrank 32% to RM17m due to a lower profit margin. We suspect that this is a result of higher R&D expenses and a different product sales mix that offers a lower profit margin.
Expect a stronger 2015
Pharmaniaga should continue to deliver earnings growth in 2015, helped by stronger demand for pharmaceutical products in Malaysia. We expect its biggest customer, the Ministry of Health, to increase its purchase of drugs. In Budget 2015, the government increased the allocation for the purchase of pharmaceutical and medical supplies by 25% from previous year’s level. On top of that, cheaper fuel cost and lower electricity tariff should also contribute positively to Pharmaniaga’s earnings this year by lowering its operating costs.
Decent dividend yield
The group declared a dividend of 12 sen per share in 4Q, bringing its YTD DPS to 28 sen. This lifts its full-year 2014 payout ratio to 77% from 2013's 75%. We are raising our payout ratio assumption for FY15-16 to 77%. Based on our earnings estimates, this translates into a dividend yield of 5.5% this year.
Source: CIMB Daybreak - 24 February 2015
Target RM5.85 (Stock Rating: ADD)
Pharmaniaga's FY14 net profit beat our forecast by 18% and consensus by 13%. The outperformance was due mainly to a lower effective tax rate and stronger-than-expected earnings from its logistics division. Another positive surprise was the final DPS of 12 sen, which brings its YTD DPS to 28 sen. We had projected only 20 sen for the full year. We raise our FY15-16 EPS by 1-14% to account for stronger contribution from its logistics division. We retain our valuation basis (3-year average P/E), but our target price drops to RM5.85 as we lower the target P/E multiple to 15.1x from 16x to reflect its latest 3-year average P/E. The stock remains an Add. The strong 4Q results and future earnings growth are the key potential re-rating catalysts.
Key highlights
A lower effective tax rate and better performance from the logistic division boosted Pharmaniaga’s 4Q14 net profit by 76% yoy to RM37m. Its effective tax rate was only 1% in 4Q due mainly to the recognition of deferred tax assets. Its pretax profit (PBT) rose 15% to RM38m on the back of better logistics contribution. Pharmaniaga’s logistics PBT rose 77% to RM19m and it attributed this better performance to higher revenue and lower provision for doubtful debts. However, its manufacturing PBT shrank 32% to RM17m due to a lower profit margin. We suspect that this is a result of higher R&D expenses and a different product sales mix that offers a lower profit margin.
Expect a stronger 2015
Pharmaniaga should continue to deliver earnings growth in 2015, helped by stronger demand for pharmaceutical products in Malaysia. We expect its biggest customer, the Ministry of Health, to increase its purchase of drugs. In Budget 2015, the government increased the allocation for the purchase of pharmaceutical and medical supplies by 25% from previous year’s level. On top of that, cheaper fuel cost and lower electricity tariff should also contribute positively to Pharmaniaga’s earnings this year by lowering its operating costs.
Decent dividend yield
The group declared a dividend of 12 sen per share in 4Q, bringing its YTD DPS to 28 sen. This lifts its full-year 2014 payout ratio to 77% from 2013's 75%. We are raising our payout ratio assumption for FY15-16 to 77%. Based on our earnings estimates, this translates into a dividend yield of 5.5% this year.
Source: CIMB Daybreak - 24 February 2015
