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KUALA LUMPUR: Pharmaniaga Bhd’s profit margins could see some pressures ahead on higher input costs.
The group noted in its recent briefing with analysts that higher input costs may potentially be felt from higher active pharmaceutical ingredient prices and the weaker ringgit to US dollar.
However, it said these factors have had a minimal impact so far on its margins, noting that this could change if the situation continues over the next three months or longer.
“The gradual rise in consumer healthcare sales mix in the medium term will likely dilute the overall margins slightly, given the segment’s lower margin owing to its higher advertising and promotion costs,” CGS-CIMB Research said in its latest report.
The research house has lowered its earnings before interest, taxes, depreciation and amortisation (Ebitda) margins forecast for Pharmaniaga slightly and expects Ebitda margin for the financial year 2022 (FY22) to contract by 3.3 percentage points to 4.6%.
“We believe our cuts sufficiently reflect the potential input cost pressures ahead,” it said.
Due to this, the research house had also cut its forecast core earnings per share for FY22-FY24 by 6% to 7.5% to factor in lower Ebitda margins and higher FY23-FY24 forecast capital expenditures for new warehouses.
CGS-CIMB Research had maintained its “add” rating on the stock but cut its target price to 73 sen, which is based on 15 times forecast price-to-earnings ratio for 2023.
Meanwhile, Pharmaniaga hopes to double or even triple its consumer healthcare revenue contribution by FY24 from a low base or less than 1% of revenue so far.
This would be supported by new product launches, which would help offset a normalisation in Vitamin C demand that was boosted by the Covid-19 surge prior to this.
“It is also exploring possible acquisitions of brands with established product ranges and customer base to expedite the consumer healthcare expansion and it has not factored this into its revenue target,” it added.
Pharmaniaga’s manufacturing plant for oral solid dosages in Bangi, Selangor, is operating at a utilisation rate of about 65%, which gives it room to ramp up output if the need arises.
“We believe the ample excess production capacity at Pharmaniaga’s existing plants will give it space for more output in the next three to five years on rising pharmaceutical demand and new product launches,” CGS-CIMB Research said.
Demand can be met with little to no incremental capital expenditures, it said.