BStead/Pharma ... Aug10

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’’.

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.

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.

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 (2010) 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.

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%.

Pharmaniaga stumbled at the start of 2010 after its manufacturing licence was revoked by the Health Ministry in March.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 2010 contributed to the drop in first quarter, but the profit was back on growth track after normal operations resumed in the second quarter.

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.