Pharmaniaga Berhad (7081)

Pharmaniaga Berhad provides integrated healthcare solutions primarily in Malaysia. The company engages in manufacturing generic pharmaceuticals, and providing logistics and distribution, sales and marketing, medical products and services, hospital equipping and planning, turnkey contract management, and information technology solutions. It also engages in the research and development, and trade of generic pharmaceutical products; warehousing and distribution of pharmaceutical and medical products; and hospital equipment trading, as well as providing clinical laboratory testing and other laboratory related services. In addition, Pharmaniaga engages in the sale and distribution of portable medical devices, and distribution and trading of pharmaceuticals product, food supplements, and diagnostics product. The company was founded in 1994 and is based in Shah Alam, Malaysia.


Financial Analysis:

Years EPS
1999 0.306
2000 0.496
2001 0.308
2002 0.373
2003 0.407
2004 0.502
2005 0.260
2006 0.117
2007 0.468

Years Dividend
1999 0.05
2000 -
2001 0.075
2002 0.085
2003 0.12
2004 0.15
2005 0.115
2006 0.15
2007 0.18
Average Dividend Payout on EPS = 37.06%

Years Revenue (000')
1999 356382
2000 427591
2001 543496
2002 585237
2003 632604
2004 799991
2005 936431
2006 1057868
2007 1183983
8 Years Average Revenue Growth Rate = 16.41%
5 Years Average Revenue Growth Rate = 15.3%
1 Year Revenue Growth Rate = 11.92%
Comment: Strong Growth

Years Equity
1999 115478
2000 140176
2001 168480
2002 200821
2003 241683
2004 284844
2005 314557
2006 316240
2007 349671
8 Years Average Equity Growth Rate = 15.07%
5 Years Average Equity Growth Rate = 11.95%
1 Years Equity Growht Rate = 10.57%
Comment: Slowdown, but still above market average

Years ROE(%)
1999 3.85
2000 17.7
2001 18.28
2002 18.59
2003 16.86
2004 17.85
2005 10.23
2006 4.45
2007 14.79
9 Years Average ROE = 13.62%
5 Years Average ROE = 12.84%
1 Years ROE = 14.79%
Comment: Strong compare to other companies in the same industry


Intrinsic Value:
1. Current EPS = 0.468
2. Estimated EPS Growth Rate in the future 10 years = 13.62% (take the 10 years Average ROE growth rate)
3. Estimated PE = 12.45 (8 years average)
4. Minimum acceptance of return = 15% (My minimum acceptance level)

EPS become 1.68 after 10 years

Intrinsic Value : RM1.68 x 12.45 = RM35.09 /4 = RM8.77

Let's take a margin of safety of 50% : RM8.77 /2 = RM4.39 > RM3.48 (24/6/08)

Conclusion: Strongly Undervalue if u looking for a yearly 15% return portfolio.


Let's take another culculation for safety reason.

Net Asset per share = RM2.98 (31/12/2007)

ROA = 0.468/2.98 = 15.7%

15.7% x (100% - 37.06%) = 9.88%

Years NTA expected
2008 2.16
2009 2.34
2010 2.53
2011 2.74
2012 2.97
2013 3.22
2014 3.49
2015 3.78
2016 4.1
2017 4.44

Let say the 10 years ROE in future is 13.62% (less than the average historical data)

Average PE = 12.45

Intrinsic Value = RM4.44 x 0.15 x 15 = RM12.96

Let's take a MOS of 50% = RM12.96 / 2 = RM6.48 > RM3.48 (24/6/08)

Comment: Strongly Undervalued


Why i choose Pharmaniaga rather than other company in the market?

1. A potential industry, market worth 1 billion USD in Malaysia market. The improvement standard of living makes consumers pay greater attention for their help. (Changing of living trend)

2. The company achieve an strong growth away from it's traditional income source, Gvernment Concession

3. Experience management team, impresssive cost & inventory control strategy, help company safe millions of ringgit. (by the implementation of Lean Six Sigma strategy)

4. Highly focus on the manpower trainings & courses, improve the employees productivity & capabality.

5. As a basic nessecity, pharmaceutical industry is recession-proof where by demand will not be significant effected by the economy downturn. (can refer to the historical data)

6. Pay attention on shareholder value & equity.

7. Aggressive business expansion to oversea market, especially the Indonesia which less Healthcare manufacturer & supplier. Pharmaniaga also expanding thier business into Middle East & Vietnam market. With the high GDP of USD7730 per capita, (which is very high compare to other middle east conutries) it will be a great market to enter. For the booming of Vietnam pharmaceutical market, it will be another great expansion for the company.



8. Constantly new product launching to target different market, example Citrex products D-EPA & EPOFemme Improving market share.

9. With a high NTA, RM2.98 (around 85.6% of it's current price, a big discount)


Investment Risk:

1. The changing of politic environment may affect the group earnings. 60% sales from government concession. The current concession of 15 years will expired November 2009. (The comapny havd submitted documents for renewal before expired. Result will be announced November 2008)

2. The expansion risk to a new market including the government policies.


Conclusions:

You know what, when the first time i read all the historical annual reports, i found that this company's annual report is different. (give me a wow!) I found that, they are really put their effort on the annual report, and it is very informative. They show their strategies very clear, the risk management, inventory management strategy, risk management portfolio............................. It have give me a clear mind of what the company's business structure & how the business operate.

For me, pharmaceutical is a reccession proof industry. In the current unstable economy, put your money in a company which can protect our capital is very important.

Good Investing!