Pharma stocks recorded an upward rally on Wednesday morning in response to news of state-owned pharmaceutical company PT Bio Farma looking for volunteers to assist the clinical trial of a vaccine candidate developed in partnership with Chinese biopharmaceutical firm Sinovac Biotech.
Some pharmaceutical companies have not only regained back the losses from this year’s historical market rout, which saw the benchmark Jakarta Composite Index (JCI) fall to its lowest point in eight years to 3,937.63, they have also reached their own record highs for prices in 2020. Vaccine optimism.
Between July 13 and 24, PT Indofarma Persero shares (INAF) soared by 155 percent, reaching this year’s highest level at Rp 2,610 apiece on July 24. During the same period, PT Pyridam Farma shares (PYFA) increased by 86 percent while PT Phapros’ shares (PEHA) climbed by 58 percent.
“The stock market is now brimming with optimism over vaccines or medicine,” Anugerah Mega Investama director Hans Kwee said during a webinar on Tuesday.
Even with a concerted effort, the development of a COVID-19 vaccine would only happen in one to one-and-a-half years’ time, Hans added, noting that this was nevertheless significantly faster than the normal development time of 10 years.
In response to the recent rally, the Indonesia Stock Exchange (IDX) announced on July 23 that the movement of Indofarma and PT Kimia Farma stocks were within the range of unusual market activity, suggesting that investors take the irregular price movements as a cue to reexamine the companies’ performance and corporate actions.
Following the IDX announcement, pharma stocks tumbled in subsequent days, with some reaching the IDX’s auto-rejection limit of 7 percent. While PT Kalbe Farma’s stocks fell a modest 2.26 percent on Tuesday against the previous trading day, PT Indofarma went down by 7 percent, PT Phapros by 6.95 percent and PT Pyridam Farma by 6.82 percent.
Budi Frensidy, a stock market expert from the University of Indonesia, said that the rocketing share prices of pharmaceutical companies were an “overreaction” from the market, indicating they would inevitably go down.
“It is only natural [for share prices] to go down or hit the auto-rejection floor because, the fact is, the vaccines will only be traded or increase the company’s sales around next year,” Budi said during the same webinar, noting that it was common for investors to price in future cash flow.
The COVID-19 pandemic has impacted the net profit that publicly listed companies booked during this year’s first quarter. According to IDX data, the total net profit of 580 publicly listed companies went down 27.3 percent year-on-year (yoy) to Rp 72.77 trillion from Rp 100.03 trillion. Other ASEAN bourses recorded drops of between 30 and 41 percent.
Most sectors in the IDX experienced a contraction, while some were more defensive, including the consumer goods sector, which houses pharma stocks. During the first three months of the year, the consumer goods sector’s net profit grew 10.3 percent, the second-highest sectoral growth after the basic industry & chemical sector, which grew 65.2 percent.Vaccine optimism.
Mirae Asset Sekuritas Indonesia analyst Mimi Halimin is of the view that the second-quarter financial performance will likely be weak as the impact of the large-scale social restrictions will be more visible during the said period, as written in a report published on July 23.
However, continuing the trend from the previous quarter, Mimi said that consumer companies under Mirae Asset coverage would see relatively more resilient demand, adding that specifically for PT Kalbe Farma, positive revenue growth in the second quarter was still underway despite possible slight contraction in net profit due to pressure on the margin.
On May 27, PT Kalbe Farma signed a memorandum of understanding (MoU) to develop a potential COVID-19 vaccine with Genexine, Inc., a biotech company from South Korea.
“The impact on Kalbe Farma’s financial performance will vary, depending on how fast the vaccine development is and whether Kalbe Farma will produce the vaccine locally or just import it and then distribute it into the market,” Mimi wrote.
Artha Sekuritas Indonesia vice president Frederik Rasali told The Jakarta Post on Tuesday that from a business perspective, there were other potential threats that might impact the performance of pharmaceutical companies once a vaccine is found.
“For example, if there is a vaccine from another brand entering Indonesia with stronger capability and possibly a lower price, vaccine sales in several pharmaceutical companies are likely to slow down,” Frederik said in a text message.
“Caution, by observing the reasonableness of price increases, is needed by investors,” IDX development director Hasan Fawzi said during the webinar on Tuesday, in response to the trend of irregular movements among pharma stocks.
He said the unusual market activity notification was an opportunity for investors to look for more information on the pharmaceutical companies and potential vaccine.
“The best decision from the investors must be based on correct and valid information about the prospects of pharmaceutical companies,” he concluded. Pharma stocks surge as market brims with vaccine optimism (Yunindita Prasidya, The Jakarta Post)
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