KUALA LUMPUR: Kenanga Research reaffirmed its cautious stance on Pharmaniaga Bhd after the company revealed it had signed a concession deal with the government.
Pharmaniaga said in a filing with the stock exchange yesterday that it has been granted a seven-year concession to handle the procurement, storage, supply, and delivery of medical products to Ministry of Health-operated offices and facilities in Malaysia.
Subject to an earlier termination, the agreement will go into effect retroactively on July 1, 2023, and last for seven years, ending on June 30, 2030.
Under the concession agreement, Pharmaniaga must implement the Pharmacy Information System (PhiS) and Clinic Pharmacy System (CPS) maintenance, licence renewal, change request, and system implementation based on existing operating cost rates at the new facilities.
The company is also required to construct four additional warehouses as part of a capital expenditure plan worth RM220 million, which will be financed by the proceeds of a rights issue and a private placement of additional shares.
"We are positive about this latest development, which is in line with our expectation that the concession is now formally signed and extended. There were scant details of the concession agreement.
"However, we are mindful that the government is seeking better value-for-money contracts and Pharmaniaga might have to offer new rates that are more competitive (of which we have reflected in our forecasts)," said the research firm.
Kenanga forecasts modest earnings growth for Pharmaniaga in the financial year 2024 (FY24), averaging RM40 million to 60 million, comparable to pre-Covid levels and driven by consistent orders for medical supplies from concessions under the Ministry of Health.
"We remain cautious on Pharmaniaga due to the negative shareholders' equity of RM264 million as of Sept 30, 2023, impeding its ability to give out dividends," said Kenanga.
It maintained "underperform" on the share with a target price of 31 sen.