Pharmaniaga's PN17 status: Heads will roll?

06 Mar 2023 02:58am
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Now that Pharmaniaga Berhad is a financially distressed company, will there a revamp in the company's management team?

Industry sources ever since the company is a Practice Note 17 company virtually overnight, heads will roll to be accountable for the kerfuffle.

"It is likely that Boustead Holdings Berhad which owns 52 percent of Pharmaniaga, would want to hold somebody accountable.

I would not be surprised if the entire management team of Pharmaniaga is replaced or even sacked.

This involves a RM500 million loss and if you ask me, several heads will roll," an industry source told SinarDaily.

Malaysia's integrated pharmaceutical firm became a financially distressed company on Monday when it registered a RM600 million loss in 2022 alone.

This was mainly due to the unsold Covid-19 vaccines still languishing in it's stockpiles.

It's shares more than halved earlier this week to RM0.25.

EPF to bail out Pharmaniaga?

Speculation is rife that the Employees Provident Fund or the EPF which is the second largest shareholder of Pharmaniaga may bail Pharmaniaga out of the quagmire.

"Pharmaniaga is a government linked company with a national strategic importance. It holds several government concessions to supply medical equipment to government hospitals. So a bailout by the EPF or Boustead is possible given the national importance of Pharmaniaga to the people," an analyst at a local brokerage told Sinar Daily.

He added ultimately, Boustead Holdings and Lembaga Tabung Angkatan Tentera may device a regularisation plan for Pharmaniaga.

What's next for Pharmaniaga?

While the outlook admittedly looks bleak for Pharmaniaga, ultimately the company's fundamentals look solid as a rock.

The company still owns several government concessions to supply public hospitala and as a GLC, it will likely secure a white knight to rescue it's operations.

Hong Leong Investment said there could potentially be a reversal in the impairment provision should Pharmaniaga be able to sell more of its existing Covid-19 stockpile.

Currently the group is engaging with various parties including the Islamic Development Bank and Ministry of Health to sell it's stockpile

MIDF Investment meanwhile said Pharmaniaga will continue to actively enhance the division’s operational efficiency and will build on it's

growing portfolio of products to broaden it's global presence, as well as leverage on it's increased capacity utilisation via its

contract manufacturing business.

With continued expansion of the group’s new product portfolio coupled with sustained demand, the long-term prospects for it's manufacturing division remain optimistic.

Stripping the impairment, the group made about RM15 million in core net profit in 2022.

Similarly, barring unforeseen circumstances, we believe Pharmaniaga will continue to leverage on it's capacity and capability in drug manufacturing and distribution.

Meanwhile, CGS-CIMB said the company might want to raise more equity.

"Assuming Pharmaniaga undertakes a PN17 regularisation plan that does not result in a significant change in it's business direction or policy, it has to submit the regularisation plan to Bursa Malaysia within 12 months (which can be extended upon application to Bursa).

"It must then complete the implementation of its regularisation plan within six months, and record two consecutive quarters of net profits immediately thereafter.

Given the current circumstances, we believe the most viable and likely regularisation plan for the company will be to seek additional equity fundraising to shore up its shareholders’ equity back to levels above the PN17 threshold.

This could entail a rights issue, private placement, special issue, or privatisation by key shareholders Lembaga Tabung Angkatan Tentera (LTAT) and/or Boustead Holdings Bhd (which is also 59.4 percent-owned by LTAT).