KUALA LUMPUR: Pharmaniaga Bhd's earnings visibility is in doubt beyond 2021 as the government's extended concession expired on 31 December 2021.
However, there is a likely chance the government will prolong the concession to ensure no disruption in medical supply to government hospitals and clinics, said Mercury Securities Sdn Bhd.
Just recently, the government unexpectedly announced to stop administering Sinovac vaccine once the stocks depleted, opting for the Pfizer-BioNTech vaccine, where the order stood at 45 million doses.
To note, Pharmaniaga as the sole and exclusive manufacturer and distributor of Sinovac vaccine in Malaysia has a production capacity of two million doses per month and is expected to ramp up to four million doses by August 2021.
Pharmaniaga should have completed its initial delivery of the government order of 12 million Sinovac vaccine doses by July 21.
It has received a further order of 7 million doses to state governments and government-linked companies (GLC) and additional 2 million doses to the federal government.
Mercury Securities noted that filling up the production order of 48 million doses per annum will be a tall order for Pharmaniaga, especially when the Sinovac vaccine has a lower efficacy against the Delta variant.
And hence, the optimism on Pharmaniaga's new vaccine division, which hinges solely on Sinovac vaccine, looks uncertain and make earnings forecast difficult, Mercury Securities said.
Furthermore, the emergency community activity restrictions in Indonesia arising from the second wave of the Covid-19 pandemic have also affected its Indonesia operations.
Since the pandemic has worsened lately, the revenue recovery in Indonesia, which contributes RM801 million in revenue in FY20 is not insight.
"Hence, we expect flat revenue growth in FY22 for Indonesia," Mercury Securities noted.
"We initiate coverage on Pharmaniaga with a Hold recommendation with a target price of RM0.63 on the premise of erratic earnings growth, uncertainly over the medical supply concession and the repeated order on Sinovac vaccine," the research firm said.