Materia Medica Malaysiana

The major healthcare players:

PHARMANIAGA
THE drug maker is expected to be a beneficiary of the recent budget measures.

Government initiatives to upgrade healthcare facilities and build more hospitals nationwide are expected to create more concessionaires for the supply of pharmaceuticals to the public hospitals.

Pharmaniaga, a member of the Renong group, is well positioned to win a lion's share of those contracts with concession business accounting for about 70% of the group's sales. The remaining 30% to 35% of earnings comprise sales from manufactured over-the-counter (OTC) and prescribed medicines.

The group has been awarded the rights to supply and distribute pharmaceutical and medical products to hospitals and medical institutions under the Ministry of Health (MOH) via a concession in 1994 that runs for 16 years.

Pharmaniaga is working towards reducing its dependency on the concession business and focusing on the private sector so that this business segment would contribute 40% of its turnover in the next few years.

The group's half-year to June sales rose 3.9% year-on-year to RM309.79mil due to higher concessions and exports, with sales to the Health Ministry accounting for 76.6% of the total.

Its six-month pre-tax profit also grew by about 3% to RM31.26mil. Second-quarter sales, however, fell slightly by 1.4% year-on-year to RM155.26mil, mainly due to the absence of medical equipment contract revenues.

Stock watch on Pharmaniaga

KPJ
KPJ, a subsidiary of Kumpulan Perubatan (Johor) Sdn Bhd, is expected to continue benefiting from Malaysian’s rising affluence and health awareness, as well as increased population of older age groups and tax rebates for health-related expenses.

KPJ Healthcare Bhd’s principal activities comprise owning and managing specialist hospitals and providing medical and healthcare services.

It is now operating 11 hospitals and building another two – Kuching Specialist and Seremban Specialist, which are expected to open at the end of 2003 and early 2004, respectively.

Currently KPJ has 1,371 licensed beds, 360 specialists and 3,674 staff members, making KPJ the second biggest healthcare employer after the Ministry of Health.

Primary catalysts of growth for the group would be its new hospitals, which would make KPJ’s coverage nearly nationwide.

In addition to its ongoing efforts in aggressively growing its hospital chain and expanding the hospitals, KPJ is set to build a new nursing college to facilitate its expansion and mitigate the risk of nurse shortage.

Revenue for the first half of the year ending Dec 31, 2003, jumped to RM240.4mil from RM79mil last year. Pre-tax profit increased from RM8.4mil to RM12.7mil.

Stock watch on KPJ

MOX
The increase in government expenditure to upgrade existing healthcare facilities and to build more hospitals would generate demand for medical gases and gas pipeline installation for the industrial gas solutions provider.

MOX acquired rival Nissan-Industrial Oxygen Inc Bhd, now renamed MOX Gases Bhd, last year and analysts said the merger of the companies would drive growth this year as the acquisition provides MOX with a near monopoly in Malaysia.

Its market share would increase to 70% and the group would be better able to manage its efficiency and costs, as the acquisition would allow the company to achieve higher growth rates.

MOX posted a net profit of RM82.2mil for the nine months ended June 30, up 32% from the previous corresponding period, while turnover rose 19% to RM413.3mil.

The improvement was due to the contribution from MOX Gases, and the completion of non-recurring large projects.

Notwithstanding the merger, the company has maintained that it needs foreign direct investment and a healthy economy to drive revenues and profit up.

Stock watch on MOX

KOTRA
Kotra's share price has been hovering around RM1.30 to RM1.50 in the past one year since making its debut in the Mesdaq market in October 2000 with an IPO price of 87.5 sen.

However, the group seems positive about its future revenue growth targeted to be above 20% a year.

Kotra is also deemed to be in a very resilient and recession-proof industry as it is producing something that is a necessity for consumers.

Manufacturing both prescribed drugs and non-prescribed products (OTC products), the group has its own product/market niche in children's health supplements under the brand name Appeton, which has achieved market recognition.

Its prescribed range of products is marketed under the brand name Axcel. In addition, the group also produces Booster, an energy-enhancing beverage.

Kotra's pre-tax profit dropped by 50% to RM3.5mil for the year ended June 30, 2003. Revenue, however, increased from RM31.8mil to RM38.8mil.

The drop in profit was attributed to an estimated loss of RM1mil in respect of the nationwide voluntary product recall exercise, additional advertising and promotional activities of RM2.6mil, and increased production overheads and manufacturing costs.

Increased sales of generic products had also reduced the group's gross profit margin despite higher sales.

Stock watch on Kotra

DUOPHARMA
The company's strong fundamentals and its clear lead in the injectables market have made it an interesting stock for investors.

Duopharma is enjoying healthy demand for its small volume injectables (SVIs) and its new four-storey plant, scheduled to be ready by the end of this year, will increase capacity by 50%.

It is purportedly the largest supplier of locally made injectables in the country. It has a market share of more than 85%. Currently, it relies on Pharmaniaga Bhd for some 40% of its sales. Another 40% comes from its sales to the private sector, 10% from tender sales and the remaining 10% from exports.

Pharmaniaga is said to have recently confirmed that it would be renewing a contract worth an estimated RM30mil with Duopharma for the supply of injectables. The contract expires in December.

It is also reported to be making a concerted effort to diversify its earnings by xpanding into new markets like the Middle-East and competing for more government tender exercises.

Expectations are that Duopharma's proposed one-for-five bonus issue, which has obtained all the necessary approvals, will spur interest in the stock.

The exercise is to facilitate its transfer to the main board. It reported a net profit of RM8.9mil for the first six months of its financial year ending December 2003, compared with RM2.4mil in the last corresponding period. Revenue rose to RM39.8mil from RM11.8mil.

Stock watch on Duopharma

APEX Apex Healthcare Bhd, which graduated to the KLSE main board in August, is confident of maintaining steady growth. For its first half-year ended June 30, the company's revenue and pre-tax profit grew 11.8% and 11.3% respectively to RM89.6mil and RM7.2mil against the corresponding six months of 2002.

EPS during the period increased 9.7% to 11.75 sen from 10.71 sen previously. Manufacturing is the main income earner for the company and contributes 60% to earnings, while marketing, distribution and retail make up the balance.

Apex's manufacturing arm, Xepa-Soul Pattinson (M) Sdn Bhd, plans to launch three to six new drugs a year.

Currently, the group supplies mostly to pharmacies and clinics in the private sector with the government sector accounting for only 10% of group sales.

This mix is said to have worked well for Apex over the years.

Analysts reckon the market is big enough for Apex to concentrate mainly on the private sector as that is where the group's strength lies.

Abroad, the group's aim is to set up more offices in the company's major markets. This has been achieved in Singapore where Apex has its own sales and marketing team.