PHARMA (7081) - 3 Reasons Why You Should Like Pharmaniaga
The pharmaceutical sector in Malaysia has grown at an annual rate of eight to 10 percent over the past decade.
This growth is not surprising considering how the entire world is seeing a shift in the spending and growth of the middle classes.
When the people get more wealthy, prices of things increase, and that includes healthcare spending.
We have covered Pharmaceutical plays before. This week, we look at one that is one of the largest integrated local healthcare companies in Malaysia; Pharmaniaga.
Pharmaniaga is a public listed company on the main market of Bursa. It has a comprehensive value chain that includes manufacturing of generic pharmaceuticals, logistics and distribution, sales and marketing, to the supply of medical products and services.
Market Leader In Malaysia
Although the pharmaceutical scene is extremely competitive, it helps when your presence is mammoth liked.
Pharmaniaga supplies drugs and medical products (generic) on an exclusive basis to government hospitals and clinics under the 10-year concession agreement with the Ministry of Health (MOH) in Malaysia.
Slated to end in 2019 (concession agreement), this 10 year concession is the second time it was awarded to Pharmaniaga.
In 2013, Pharmaniaga accounted for approximately 50 percent share of the spending of MOH.
Although the concession will end in 2019 and be subjected to a re-evaluation, where we’ve seen changes made twice; from a concession of 15 years (1994 -2009) to a concession of 10 years (2009 – 2019), it is irrefutable that winning this concession again will help the company leap into another cash flow generation decade or less.
Pharmaniaga has taken advantage of the concession period and built an infrastructure to support this kind of volume requirement under such concession contract, with zero backorder and order fulfilment during 99.9 percent of the time.
This effectively creates an impressive track record that is difficult to contest. Apart from the lion share sector driving more than half of its total revenue for FY14, the company is also strong in the private sector playing field.
Financial Strength
In tandem with being a market leader and calling dibs on the lucrative public sector, it is not difficult to see corresponding figures in its financial statements.
Top and bottom line have all been increasing steadily over the past five years.
Sales and gross profit have grown at a compounded annual growth rate (CAGR) of 10.3 percent and 11.4 percent over the past five years.
It is interesting to note that gross margins have increased from 11.1 percent in 2010 to 16.5 percent in 2014.
This is a sign that other contributions apart from its core segment that supplies MOH which are more profitable are slowly inching in to lift overall profitability of the group due to their higher profit margin nature.
ROE, ROCE and ROC are also all relatively high at 17.9 percent, 18.5 percent, and 12.1 percent. This is a mark of stable and good profitability.
Pharmaniaga’s total debt to equity has declined from 69.9 percent in 2012 to 36.4 percent in 2014.
Majority of the company’s debt are categorised under short-term borrowings. However, with its interest coverage of 8.4 times, the company is more than well supported to pay up for immediate debt obligations.
New Inroads
We’ve been talking about moats that stymie Pharmaniaga’s current mammoth position in its operating arena.
There are however new catalysts within these past few months that will seek to add more color in the overall strength of this company.
The supply agreement inked with three teaching hospitals entail the company to solely undertake services of purchasing, storing, supplying and delivering drugs and non-drugs.
This is expected to generate RM160 million per annum to Pharmaniaga’s top line.
The full implementation of its Pharmacy Information Systems (PHIS) nationwide in FY15 and FY16 will see a deeper reach into the pharmaceutical landscape, as the company will then be able to constantly be in the know of the stock levels of drugs in different consigned facilities and actively supply drugs shortfall to match demand.
This will highly enable Pharmaniaga to manufacture, supply, charge, and dispense effectively making its place in the value chain even stronger than before.
Pharmaniaga is currently trading at a price earnings ratio of 18.41 times and commands a dividend yield of 3.7 percent.
The pharmaceutical sector in Malaysia has grown at an annual rate of eight to 10 percent over the past decade.
This growth is not surprising considering how the entire world is seeing a shift in the spending and growth of the middle classes.
When the people get more wealthy, prices of things increase, and that includes healthcare spending.
We have covered Pharmaceutical plays before. This week, we look at one that is one of the largest integrated local healthcare companies in Malaysia; Pharmaniaga.
Pharmaniaga is a public listed company on the main market of Bursa. It has a comprehensive value chain that includes manufacturing of generic pharmaceuticals, logistics and distribution, sales and marketing, to the supply of medical products and services.
Market Leader In Malaysia
Although the pharmaceutical scene is extremely competitive, it helps when your presence is mammoth liked.
Pharmaniaga supplies drugs and medical products (generic) on an exclusive basis to government hospitals and clinics under the 10-year concession agreement with the Ministry of Health (MOH) in Malaysia.
Slated to end in 2019 (concession agreement), this 10 year concession is the second time it was awarded to Pharmaniaga.
In 2013, Pharmaniaga accounted for approximately 50 percent share of the spending of MOH.
Although the concession will end in 2019 and be subjected to a re-evaluation, where we’ve seen changes made twice; from a concession of 15 years (1994 -2009) to a concession of 10 years (2009 – 2019), it is irrefutable that winning this concession again will help the company leap into another cash flow generation decade or less.
Pharmaniaga has taken advantage of the concession period and built an infrastructure to support this kind of volume requirement under such concession contract, with zero backorder and order fulfilment during 99.9 percent of the time.
This effectively creates an impressive track record that is difficult to contest. Apart from the lion share sector driving more than half of its total revenue for FY14, the company is also strong in the private sector playing field.
Financial Strength
In tandem with being a market leader and calling dibs on the lucrative public sector, it is not difficult to see corresponding figures in its financial statements.
Top and bottom line have all been increasing steadily over the past five years.
Source: Company
It is interesting to note that gross margins have increased from 11.1 percent in 2010 to 16.5 percent in 2014.
This is a sign that other contributions apart from its core segment that supplies MOH which are more profitable are slowly inching in to lift overall profitability of the group due to their higher profit margin nature.
ROE, ROCE and ROC are also all relatively high at 17.9 percent, 18.5 percent, and 12.1 percent. This is a mark of stable and good profitability.
Pharmaniaga’s total debt to equity has declined from 69.9 percent in 2012 to 36.4 percent in 2014.
Majority of the company’s debt are categorised under short-term borrowings. However, with its interest coverage of 8.4 times, the company is more than well supported to pay up for immediate debt obligations.
New Inroads
We’ve been talking about moats that stymie Pharmaniaga’s current mammoth position in its operating arena.
There are however new catalysts within these past few months that will seek to add more color in the overall strength of this company.
The supply agreement inked with three teaching hospitals entail the company to solely undertake services of purchasing, storing, supplying and delivering drugs and non-drugs.
This is expected to generate RM160 million per annum to Pharmaniaga’s top line.
The full implementation of its Pharmacy Information Systems (PHIS) nationwide in FY15 and FY16 will see a deeper reach into the pharmaceutical landscape, as the company will then be able to constantly be in the know of the stock levels of drugs in different consigned facilities and actively supply drugs shortfall to match demand.
This will highly enable Pharmaniaga to manufacture, supply, charge, and dispense effectively making its place in the value chain even stronger than before.
Pharmaniaga is currently trading at a price earnings ratio of 18.41 times and commands a dividend yield of 3.7 percent.
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