Pharmaniaga shares lost footing, falling to near 9-year low after an annual loss

KUALA LUMPUR (Feb 21): Pharmaniaga Bhd's share price lost its footing this morning, falling 18 sen or 8.82% to RM1.86 — the lowest level since May 2011.

Selling pressure on the pharmaceutical company re-emerged after the release of its first annual loss since it has been listed on Bursa Malaysia in 1999.

The group posted a net loss of RM149.22 million for the financial year ended Dec 31, 2019 (FY19) from a net profit of RM42.47 million in the previous year, despite an 18.3% growth in revenue to RM2.82 billion from RM2.38 billion in FY18.

CGS-CIMB Research, which has a "Hold" call on the stock, said Pharmaniaga's earnings were hit by "bitter amortisation pill".

Its analyst Syazwan Aiman Sobri, who pegs his target price at RM2.17, noted that Pharmaniaga posted a core net profit of RM29.3 million in FY19, after excluding a large amortisation charge of RM247 million and other one-off items including a provision of stock write-off due to the voluntary Ranitidine product recall amounting to RM13.3 million.

However, the annual core profit was down by nearly 50% year-on-year.

Meanwhile, MIDF Research analyst Nabil Zainoodin, who is recommending the stock to clients, has highlighted in his research note that he expects Pharmaniaga to have a stronger cash flow position.

According to Nabil, the group’s operating cash flow had turned positive at RM188.8 million in the fourth quarter ended Dec 31, 2019 compared with a deficit of RM82.8 million a year ago. The stronger cash flow was due to the higher sales recorded and improved collection.

The additional cash was used to pared down debt by RM81.4 million, said Nabil in the research note.

“We are revising FY20F and FY21F earnings forecast upwards by +8.1% and +14.7% respectively to take into account stronger sales momentum and lower amortisation rate as PhIS costs has been fully amortised,” the analyst added. MIDF Research has also revised its target price higher to RM2.35 from RM2.27 previously.