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Short Position - Limelight on Pharmaceuticals

TheStar Sat, Aug 01, 2020 08:00am - 1 week ago


Not so exclusive

STEALING the limelight from the glove boys in recent weeks are pharmaceutical companies, namely Pharmaniaga Bhd and Duopharma Biotech Bhd.

Both have seen their share prices soar – Duopharma’s stock even reached a record high – as a result of news that there is hope for a Covid-19 vaccine and these companies would be the ones involved in packaging and bringing it to the market in Malaysia.

Notably, earlier news reports, quoting Science, Technology and Innovation Minister Khairy Jamaluddin, did state that Pharmaniaga and Duopharma would be involved in the fill and finish processes for the Covid-19 vaccine, once it is ready.

So it is no wonder that the share prices of these companies sky-rocketed.

This week however, Khairy was reported as saying that the packaging for the vaccine would not be exclusively managed by these two firms.

As a result, the stocks fell.

RHB Investment Bank Research even downgraded its rating on Duopharma to “sell”, noting that its stock price had run more than 70% in the past month or so but its fundamentals had not changed.

This begs the question, was the rally of both stocks justified?

If the fill and finish processes will be opened to more companies, it is a given that there will be more competition and perhaps even if both companies undertake the business, margins may not be as attractive since there could be a handful of players vying for the same pie.

While it is still unclear at this stage who will be the beneficiaries, one thing is for sure – retail investors, traders specifically, will chase stocks, at the slightest hint of positive “news”.

Never mind that the news could change in the coming days or that the dust has not yet settled on the matter.

This is why many traders get their fingers burnt.

But it is also what makes the stock market an intriguing and exciting space.

Both companies’ share prices have since come off their highs, and it remains to be seen how their stocks will continue to react in the weeks to come.

In the meantime, the market waits for the next big thematic play.

What will it be?

Unmasking the face mask hype

IT’S true that there is increasing demand for face masks since some governments have made it mandatory for it to be worn by people when they are in public places. But it must also be remembered that face mask is a product that is easy to produce and fetches low margins.

SCGM Bhd, a producer of face mask, gave an insight into how fast face masks can be produced and brought to the market.

Towards this end, the company announced on Thursday that it has obtained approval from the authorities to export to Singapore 50% of the face masks it produced.

To meet the increasing demand, a subsidiary of SCGM will purchase two machines from China at a cost of RM350,000. Both machines are expected to arrive and will be installed this month.

Another company. Notion VTEC Bhd, also announced on Thursday that its face masks, except for the N95 respirator, was registered with the US Food and Drug Administration for use by the general public and healthcare personnel.

Notion VTec stated that it was pursuing the registration of the N95 face mask with the local authorities. The company was also seeking a certification from the Jabatan Kemajuan Islam Malaysia for all its face masks.

If the approvals are obtained, Notion VTec feels that the production and sales of face mask can be a long-term business for the company, including exports to Muslim countries.

Making a face mask is a low margin business, involves low technology and presents a low barrier to entry business. The announcement by SCGM merely confirms the fact that face mask can be easily produced.

Since SCGM is getting the machines to produce the face masks from China, there must be many producers from China who are also in the business. Hence, can Malaysian companies compete over the longer term at the international platform?

Also, there is nothing to stop small companies locally to set up face mask production facilities since the entry cost is small and the machines can be imported from China.

Time’s up

WHEN Sapura Energy Bhd announced that Tan Sri Hamid Bugo was resigning as chairman of the company, it also announced that Tan Sri Shamsul Abbas would be the replacement.

Shamsul is no stranger to the oil and gas industry given his time as president and CEO of Petroliam Nasional Bhd. The appointment of Shamsul would be seen as a suitable replacement for Hamid, who has spent years on the board of Sapura Energy and also as the current chairman of Petros (Petroleum Sarawak Bhd).

The reason for Hamid’s resignation is not anything peculiar but it does raise the question of whether the tenure limit of six years for independent board directors at companies in the Permodalan Nasional Bhd stable of companies is too restrictive.

Under the Securities Commission guidelines, it is noted that there is a nine-year limit for positions of independent directors. General convention is that after a long period time, the question of independence can be raised if a director has been with a company for a lengthy period.

The shorter time ceiling would ensure a higher degree of independence but it also deprives some companies from utilising the skills and knowledge accumulated by a particular director in the deliberations of company matters.

A turnover of independent directors would ensure their objectivity when dealing with corporate matters and it also will allow for an infusion of new talent and skill that can prove valuable to companies.

But sometimes, companies will know best if a director can still be a valuable asset and having a shorter time limit might need to be looked at on a case-to-case basis.






Related Stocks

DPHARMA 2.880
NOTION 1.920
PHARMA 4.450
SAPRES 0.385
SCGM 3.460

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