The focus of most analyses on stocks tends to be on profit forecast and financial ratios as the basis of their valuations. Less frequently mentioned are qualitative factors such as the integrity and governance of management and controlling shareholders — factors that are equally, if not more, important in driving shareholder value in the long run. Last week, we wrote about how the Covid-19 pandemic was testing times for businesses, given the high degree of uncertainties — but also times when investors could best assess management capabilities, mettle and professionalism (see “Windfall profits can also be a curse to shareholders”, July 3). Windfall profits during the pandemic can turn into a curse — and nowhere is this more apparent than at integrated pharmaceutical group Pharmaniaga.
The company was widely perceived as a winner at the outset of the pandemic, its share price surging (around mid-2020) after it was identified to undertake the “fill and finish” process for China’s Sinovac vaccine once available. It subsequently signed a contract to supply 12 million doses to the Malaysian Ministry of Health, which it delivered by July 2021. At this point, the government announced that it would stop administering Sinovac vaccines once its existing supply was depleted, as it had secured enough vaccines for its vaccination programme. The number of vaccines administered daily in the country peaked in August 2021 and was falling rapidly. Pharmaniaga, however, was still purchasing-producing and, even though the government took another eight million doses off its hands, inventory continued to rise until end- 2021. The company took a massive RM552.3 million ($160.32 million) write-down of its vaccine stockpile in 4Q2022, completely wiping out its shareholders’ equity (see Chart 1).
