INVESTORS continue to rotate into stocks that are focused on the recovery theme reacting to Covid-19 vaccine efficacy by major pharmaceutical companies.
The counter of Pharmaniaga Bhd, which is poised to secure the government’s Covid-19 vaccine distribution tender, surged 0.9% or 50 sen to close at RM5.60 yesterday.
According to MIDF Amanah Investment Bank Bhd (MIDF Research), the local pharmaceutical company is an easy contender for the job attributable to its track record on its distribution network nationwide, logistics and large capacity of sterile and liquid plants to conduct the fill and finish process for the vaccine.
However, MIDF Research noted that to undertake the fill and finish process for the vaccine, Pharmaniaga will require a small capital expenditure investment of RM2 million which will be spent towards retrofitting its existing small volume injectable or SVI plant.
“The retrofitting will take a month to complete which would also include putting in place new machineries.
“The volume is expected to be quite substantial — to the tune of 44.8m doses for a minimum of two doses for Malaysia to produce herd immunity,” said MIDF Research.
The fill and finish costs and revenue will depend on how the vaccine is administered.
MIDF Research estimates the revenue and earnings contribution from the tender by using a study published by an international non-profit health organisation PATH in 2018 located in Seattle, US.
According to the study, the total cost of delivery (TCOD) of a vaccine is highly dependent on how the vaccine is expected to be administered (ie: oral or parenteral) and consequently, will also impact the cost of transporting the vaccine as different types of containers requires different method of transportation and degree of cold.
The research firm noted based on the assumptions that Pharmaniaga’s financial year 2021 forecast (FY21F) earnings could be lifted by +3.4% to +7.4% or in the range of RM2.77-6.04m depending on vaccine administration and what type of container the Covid-19 vaccine will require.
“We deem the estimates as fair given the urgency of the vaccine and potential difficulty that the company might face in transporting the vaccine — which might increase the TCOD of the vaccine,” the research firm noted.
While the earnings contribution might seem significant in FY21F, moving beyond FY21F the research firm estimates that contribution will correlate with the number of population that needs to be vaccinated every year.
“We are maintaining our FY2021F earnings estimates at this juncture as we await further development on the Covid-19 vaccine,” said MIDF Research.
The research firm maintains the target price (TP) at RM4.74 per share pending further announcement from the government on the fill and finish tender.
“Our TP is derived via pegging our FY21F earnings per share of 31.6sen to an unchanged target price-earnings ratio (PER) of 15 times, which is the average of its historical five-year rolling PER.
“We are maintaining our ‘Neutral’ recommendation on Pharmaniaga based on the potential revision in TP, we opine that its current market price has overpriced the vaccine’s fill and finish process,” added MIDF Research.
However, the firm reiterated that it has a positive bias on the company given its estimates are on the conservative side and its earnings could surprise on the upside especially given that the Covid-19 vaccine requirements have yet to be finalised.
It added that the recent resurgence of new cases in Malaysia and several countries in Europe that have eased their respective Covid-19 measures and will continue to drive the demand for healthcare-related products which include drugs and supplements, personal protective equipment and various medical consumables.
Source: The Malaysian Reserve