By Sharina Ahmad
PHARMANIAGA Bhd expects to return to the black in the current financial year ending Dec 31, 2020 given that there will be no more amortisation of its Pharmacy Information System (PhIS) or worldwide product recall.
Managing director Datuk Farshila Emran said the company’s profitability was affected by the recognition of the remaining RM247 mil unamortised PhIS, a system developed and managed for the Ministry of Health (MoH) as part of the contractual obligations under the concession agreement which concluded last November.
“The amount refers to expenses incurred for the provision and supply of certain hardware and software for the PhIS,” she said at a media briefing on Feb 21.
Farshila said following the new contract arrangement with MoH, the remaining unamortised PhIS costs were fully recognised in the fourth quarter.
“In addition, there was also provision for stock write-off on the voluntary Ranitidine product recall of RM9 mil,” she said.
In October last year, MoH recalled 10 drugs containing the active ingredient ranitidine that is used to treat stomach ulcer as they were found to contain the impurity N-Nitrosodimethylamine (NDMA) above the permitted level.
Medications containing ranitidine are used to treat heartburn and stomach ulcer by reducing acid production in the stomach.
The company plunged into the red with a net loss of RM178.7 mil in the fourth quarter ended Dec 31, 2019 from a net profit of RM4.4 mil a year ago while revenue rose 20% to RM715.7 mil from RM596.6 mil mainly due to improved demand from concession, non-concession and Indonesia businesses.
For the full year, Pharmaniaga posted a net loss of RM149.2 mil compared with a net profit of RM42.5 mil in the previous year despite recording a higher revenue of RM2.8 bil versus RM2.4 bil.
MIDF Research has upgraded Pharmaniaga to buy as it expects the pharmaceutical company to post strong sales growth which could contribute to improve earnings and cash position going forward.
In November last year, the government extended Pharmaniaga’s services for the provision of medicines and medical supplies to MoH until the end of 2021.
It also awarded the company a new contract to continue providing logistics and distribution services for the ministry to over 148 government hospitals and 1,700 clinics nationwide for five years until the end of 2024.
“Nonetheless, with the new contract arrangement, the group was significantly impacted by the recognition of the remaining unamortised pharmacy information system of RM247 mil which caused the group to report a loss in the fourth quarter of 2019,” the research house said in a note.
MIDF expects strong sales growth from concession and non-concession businesses to contribute to an improvement in Pharmaniaga’s earnings and cash position going forward.
It revised the stock’s target price to RM2.35 from RM2.27.
Farshila, who will leave the company when her contract expires at end-March, said it was a challenging quarter as the company was significantly impacted by the recognition of the remaining unamortised PhIS.
Mohamed lqbal Abdul Rahman, who is the chief operating officer, will assume the role of acting MD of Pharmaniaga, until such a time an MD is appointed.
“Nevertheless, it is imperative to note that the company’s financial performance will not be burdened by the PhIS amortisation moving forward,” Farshila said.
She stated that the company has continued to register solid growth in revenue and this is indeed encouraging and bodes well for its prospects.
“In the short-term, the ongoing coronavirus outbreak remains at the forefront as the healthcare sector strives to contain the disease.
“From a long-term perspective, we are confident that the outlook is positive for Pharmaniaga,” she said.
Farshila said the new contracts from the government are set to be key contributors to the company’s earnings.
“In tandem, we are strongly focused on our continuous drive to enhance operational efficiencies and build up our research and development capabilities to tap into new opportunities in the pharmaceutical industry.”
She adds this will enable the company to grow its various business streams as well as its overseas operations, led by its Indonesia division.
However, the Indonesia business recorded a deficit of RM1.8 mil, primarily attributable to higher finance costs. The company has taken the necessary measures to strengthen the management of debt payments to reduce finance costs.
Pharmaniaga is looking at venturing into new markets such as Europe and other Southeast Asian countries.
According to a company executive, Pharmaniaga has registered two products In Portugal. It is in the process of registering them in other countries.
The registration process will take about two years after which the products can be marketed. – Feb 21, 2020
