Monday August 16, 2010

Pharmaniaga fits into Boustead’s growth plan


Takeover will make healthcare a new major segment for Boustead

PETALING JAYA: It was an open secret that Khazanah Nasional Bhd-controlled UEM Group wanted to sell its stake in Pharmaniaga Bhd and had been looking for the right buyer in the past year or so.

Pharmaniaga is a steady, profitable business that has never lost money since it went public a decade ago, but was considered not the right fit for UEM or Khazanah.

On the other hand, Boustead Holdings Bhd chief executive Tan Sri Lodin Wok Kamaruddin needs an established name to launch the group’s foray into the healthcare business in a big way.

He believed that Pharmaniaga fitted the bill, and made a generous offer for control.

At a press conference in June, Lodin was reported to have said that the acquisition of Pharmaniaga would pave the way for Boustead, a property and plantation group, to move into the pharmaceutical business in the Asean region “in a serious manner’’.

He announced that Boustead would pay RM534mil, or RM5.75 a share, to buy UEM Group’s entire 86.8% stake in the country’ largest integrated healthcare company.

Previous reports had linked Permodalan Nasional Bhd (PNB) as one of several potential bidders for Pharmaniaga.

PNB controls Chemical Company of Malaysia Bhd, a maker of pharmaceutical products as well as fertiliser and industrial chemicals.

Pharmaniaga owns the concession to supply medical products to government hospitals since 1998, and the contract was renewed last year that extended the concession by another 10 years from Dec 1, 2009.

The generic drugmaker made a record profit of RM60.2mil on revenue of RM1.3bil in the year ended Dec 31, 2009.

It is estimated that the concession business generated around 60% of the group’s annual revenue.

Apart from the local operations, Pharmaniaga holds a 55% stake in PT Millennium Pharmacon International, a pharmaceutical company listed on the Jakarta Stock Exchange.

Analysts said there were “synergistic benefits” to be derived for Boustead after it launched its own pharmaceutical manufacturing business about five years ago via Idaman Pharma Manufacturing Sdn Bhd.

Buying over Pharmaniaga would signifcantly enhance the profile of the group’s healthcare business and immediate access to overseas markets.

Under the takeover plan, Boustead will extend an offer to buy out the remaining minority shareholders in Pharmaniaga after it acquires the controlling stake from UEM.

Boustead has stated that it plans to keep Pharmaniaga listed on Bursa Malaysia. At this juncture, it is unclear how it intends to achieve that.

The stake acquired from UEM alone is 86.8%, and it is likely that the general offer will find some takers.

To comply with the stock exchange listing rules, Pharmaniaga needs to maintain a minimum 25% public shareholding spread.

The exchange has given the company until the end of the year to meet the minimum requirement.

With Pharmaniaga likely to be Boustead’s fifth listed company, it is likely that the group’s healthcare division would be housed together.

Boustead’s offer effectively valued Pharmaniaga at about 11 times profit made in FY09.

The bid was also the highest price offered for Pharmaniaga shares since early 2005.

At last Friday’s close of RM5.63, the stock was near its best level in almost six years, but below the offer price from Boustead.

For the first half ended June 30, Pharmaniaga’s net profit stood at RM24mil.

On an annualised basis, its full-year earnings may fall short of last year’s record performance.

Dividend payout for this year is estimated at a lower 30 sen per share, which still translates to a decent yield of 5.2%.

“We continue to view Pharmaniaga as a defensive stock with decent prospect and respectable dividend yield,’’ Standard & Poor’s Equity Research said in a recent report.

“We expect Boustead to turn more aggressive in its effort to expand its pharmaceutical business in the Asean region,’’ it added.

Pharmaniaga stumbled at the start of 2010 after its manufacturing licence was revoked by the Health Ministry in March.

The move was for several non-compliance issues following a routine audit at its facility in Bangi.

The factory’s closure in March contributed to the drop in first quarter, but the profit was back on growth track after normal operations resumed in the second quarter.

An analysis of its second-quarter results also revealed that its sales to the government continued to rise due to rising demand for generic drugs, but margins had suffered.

Boustead is the flagship company of Lemabaga Tabung Angkatan Tentera.

The diversified conglomerate has over 100 subsidiaries and associate firms, as well as four listed companies in it stable.

The group’s core businesses are plantation, heavy industries, property development, financial services and manufacturing.

The inclusion of Pharmaniaga’s RM1.3bil-a-year business will make healthcare a new major segment for Boustead.

PHARMA :  [Stock Watch]  [News]
BSTEAD : [Stock Watch] [News]

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