Pharma- an attractive long-term stock

Pharma- an attractive long-term stock:
Background

Pharmaniaga Berhad ('Pharma') is the largest integrated local healthcare company in Malaysia. Its core businesses are generic pharmaceuticals manufacturing and R&D, warehousing and distribution of pharmaceutical and medical products, sales & marketing as well as hospital equipping.

Recent Financial Results

For 2Q2009 ended 30/6/2009, its net profit increased by 21.9% q-o-q or 35.0% y-o-y to RM17.7 million. Its turnover was 6.2% higher than 1Q2009 but 5.7% lower than 2Q2008.


Table 1: Pharma's 8 quarterly results

From the chart below, we can see that the growth in Pharma's turnover has hit a slow patch over the past 1 year, after a period of strong growth in FY2007 & FY2006. Its net profit has been flattish for the past 2 years, after peaking in 3Q2007.


Chart 1: Pharma's 15 quarterly results

Valuation

Pharma (closed at RM4.40 on Friday) is now trading at a trailing PE of 7.7 times (based on the last 4 quarters' EPS of 57 sen) or at a Price to Book of 1.2 times (based on NTA per share of RM3.74 as at 30/6/2009). At these multiples, Pharma is deemed attractive.

Technical Outlook

Pharma has been in a downtrend for the past 5 years (see the charts below). A break above the RM4.50 level could signal the start of the recovery in its share price. On weakness, it may drift back to the RM4.00 horizontal line.


Chart 2: Pharma's daily chart as at Aug 21, 2009 (Source: Tradesignum)


Chart 3: Pharma's monthly chart as at Aug 21, 2009 (Source: Quickcharts)

Conclusion

Based on attractive valuation, Pharma may be a good stock for long-term investing. It may even be a good trading BUY if the share price were to break above the RM4.50 level.