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AS pharmaceutical companies make major breakthroughs recently in the hunt for a Covid-19 vaccine, investors are turning their attention to stocks seen as part of the storage and distribution chain for when a viable vaccine comes to Malaysian shores.

Needless to say, the share prices of total logistics solutions providers, such as Tiong Nam Logistics Holdings Bhd and Tasco Bhd, which are equipped with cold-chain capabilities, have been driven up further by investors in the last few weeks, likely owing to the vaccine news.

While there seems to be keen interest in the vaccine play, market experts believe much of it is still speculative at this point.

“For now, we believe that the share price surge, driven by Covid-19 vaccine distribution news, is most likely speculative. There have been no directives from the government or those logistics companies’ healthcare clients yet on this matter,” says MIDF Research head of research Imran Yusof.

On Nov 9, news broke that Pfizer Inc and BioNTech SE’s Covid-19 vaccine showed evidence of being more than 90% effective. A week later, Moderna Inc announced that preliminary analysis of its Covid-19 vaccine trial indicated 94.5% effectiveness.

Last week, Malaysia inked an agreement with China to cooperate on the development of a safe and efficacious Covid-19 vaccine. The agreement will give it priority access to coronavirus vaccines developed by China.

 Also, China National Pharmaceutical Group (Sinopharm), through GI Healthcare Resources Sdn Bhd — a joint-venture company with local investors — has agreed to sponsor 10,000 doses of the former’s ­Covid-19 vaccine for Malaysian front liners. The sponsorship was agreed upon between Home Minister Datuk Seri Hamzah Zainuddin and Health Minister Datuk Dr Adham Baba, and Sinopharm’s chairman Liu Jingzhen via video conferencing.

Looking at the impact on share price performance, from Nov 9 until the close of trading last Wednesday, Tiong Nam gained a total of 37.2%, from 56.5 sen to 77.5 sen. Meanwhile, Tasco’s share price gained 9.2% over the same period, from RM2.48 to RM2.71.

However, a closer look shows that Tiong Nam’s share price has been on a rising trend since Oct 2 (39 sen) while Tasco’s upward trend has been noticeable since Aug 26 (85 sen).

It should be pointed out that while investors are hopeful about these logistics solutions providers playing a role in vaccine distribution when the vaccine is made available in the country, industry players themselves admit that there are still many uncertainties at this point.

“Cold-chain logistics is one of the most expensive forms of logistics in the sector. Depending on the type of vaccine that is brought in, there is a lot to consider. If the vaccine is required to be stored at [lower] than the usual temperature for most vaccines, one would have to think about the return on investment of investing in additional investments,” says a person familiar with the logistics industry.

Currently, it is understood that both Tasco and Tiong Nam’s cold-chain facilities can reach temperatures as low as -30°C.

In a recent interview with Tasco by The Edge, its deputy group CEO Tan Kim Yong also mentioned that there are many uncertainties on when and how the vaccine will be available for distribution, including the technical requirements for storage and distribution.

Nevertheless, Tan said Tasco is ready to reassess its capabilities in line with the technical requirements if the opportunity arises.

Warehouses storing medical products require auditing by the Ministry of Health, says a person in the industry, and he believes vaccines would be no different and, in fact, could require more stringent controls.

Notably, there are several listed players that have an existing position in the logistics industry for healthcare products. One of them is DKSH Holdings Bhd.

According to its 2019 Annual Report, it has a cold-chain and redressing facility with industry-standard storage for vaccines and biotech products. DKSH’s healthcare distribution centre is equipped with a certification from the Transported Asset Protection Association (TAPA) for its facility security requirement. Its cold-chain facilities comply with Good Distribution Practice (GDP) and Good Distribution Practice for Medical Device (GDPMD) requirements and adhere to strict ISO 9001:2015 and ISO 13485:2016 international standards.

Investors seem to have caught on to this as well, with DKSH’s share price increasing 25% between Nov 9 and 18, from RM2.93 to RM3.66.

Besides DKSH, Apex Healthcare Bhd is another player in the market. It is in the midst of an expansion exercise of its cold-chain facility, with a refrigeration temperature range of 2°C to 8°C in Malaysia that is slated for completion by year-end.

Meanwhile, its cold-chain facility in Singapore has the capability for refrigeration at temperature as low as -20°C.

In 2019, Apex Healthcare distributed about 49 different types of vaccines in Malaysia and 25 types in Singapore.

Its share price has not moved much since Nov 9, gaining only 3.2% to RM3.52 last Wednesday from RM3.41.

While capabilities are one aspect of vaccine distribution, MIDF’s Imran also believes it would depend on whether the vaccine will be disseminated through government or business channels — such as private hospitals.

“If the distribution is through the government, then most likely there will be a tender to select companies that can handle end-to-end distribution, similar to the current arrangement. Logistics companies are likely to benefit if it is through business channels. However, [the benefit] could be limited given the stringent requirement needed to transport vaccines,” he muses.

TA Securities chief investment officer Choo Swee Kee points out that although the distribution of the vaccine would need special facilities — clean and refrigerated — it is not something new as other existing vaccines would require similar care.

He believes logistics companies are likely to only assist in the last-mile delivery if they have refrigerated trucks while pharmaceuticals such as Pharmaniaga Bhd and Duopharma Biotech Bhd, which have been identified by the Minister of Science, Technology and Innovation as capable in terms of the “fill and finish” process of vaccine, will see the biggest benefit.

“However, we think that this is just a short-term boost to their business,” notes Choo.

Both pharmaceutical companies have been seeing a rise in their share price since July 14, when Science, Technology and Innovation Minister Khairy Jamaluddin said these two companies are capable of undertaking the task.

Duopharma’s share price has leaped 150% since then, from RM1.63 on July 14 to RM4.13 at the close of last Wednesday. Pharmaniaga’s share price has also shot up by 150%, to RM5.75 last Wednesday from RM2.25 on July 14.

Another name that has been singled out as being a potential beneficiary of the vaccine play is Kelington Group Bhd, a company that supplies industrial gases and specialty gases used by the electronics, semiconductor, food processing and oil and gas industries.

The latest news from the company, according to a report by Kenanga Research, is that it has been working with pharmaceutical companies to understand the requirements of using dry ice to store Covid-19 vaccines.

Kenanga Research notes that there are only two suppliers of dry ice raw materials in Malaysia — Kelington and unlisted Linde — owing to the high barrier to entry.

“The LCO2 (the raw material for dry ice) business is very lucrative, with gross profit margins of more than 30%, more than double their ultra-high purity (UHP) gas delivery system margins,” notes Kenanga Research’s report dated Nov 16.

Kelington’s share price increased 22% between Nov 9 and 18, from RM1.32 to RM1.61.

Rakuten Trade vice-president of research Vincent Lau has no favourites for the vaccine play as he views it to be still speculative at this point. However, the bright side of the vaccine news is that it has sparked off interest in a “recovery play”, where stocks previously battered by the Covid-19 virus and lockdowns this year have been ticking up the charts as investors pour money into them.

Choo shares similar sentiments, saying that he would rather invest in the broad recovery of the economy rather than specifically on logistics players.

“When the vaccine is being rolled out, the recovery for the economy and for companies affected badly by the virus can be more significant and may last for a few years,” he notes.

http://www.theedgemarkets.com/article/vaccinerelated-plays-get-shot-arm

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