Egyptian International Pharmaceutical Industries Co. (EIPICO) [PHAR]: A Pharma Master
PHAR: Growing slowly but surely; initiate at OW/M
Overweight / Medium Risk
12MPT: EGP66 (+155%)
Key Insights
Egypt’s leading drugmaker: Egyptian International Pharmaceutical Industries (EIPICO) [PHAR] is one of Egypt’s leading drug manufacturers with a market share of 3.12% in 2022. PHAR has a wide range of drugs, led by antibiotics and serving c.25 therapeutic classes. Currently, PHAR has two operating factories (EIPICO I and EIPICO II), with its third factory (EIPICO III) expected to be launched by Q3 2024.
Penetrating a new market: According to PHAR’s management, PHAR will be the first local authorized manufacturer to introduce biosimilar products in Egypt through its EIPICO III facility with a total investment of EGP2.9bn. Ranging from manufacturing to packaging, EIPICO III will produce various biosimilar products, spanning different products from biological to monoclonal (MABs) and biopharmaceutical proteins.
Capital increase concluded: In February 2023, PHAR announced its plan to raise some EGP496mn in equity to finance EIPICO III. The capital increase was fully covered over two phases that concluded on 10 July 2023. This capital increase is dedicated to finance EIPICO III, as a part of the equity portion of its financing structure. As per management, the newly-issued shares will be issued in August after finalizing the required paperwork.
Valuation, Investment Thesis, & Risks
Overweight / Medium Risk, 12MPT EGP66/share (+155%): We valued PHAR using the discounted cash flow (DCF) approach which yielded a fair value of EGP43/share and a 12MPT of EGP66/share, offering an upside potential of 155% and hence our Overweight rating. We expect PHAR’s earnings to grow at a 10y CAGR (2022-32) of 18%.
Investment thesis: Stable market share with a wide range of drugs in the local market. EIPICO III, PHAR’s newest venture, will penetrate the high-value market of biosimilar products, which is currently estimated at USD200mn a year, as per management. A consistent dividend payer, with a 5y average (2017-22) payout ratio of 57%.
Key risks: A highly-regulated environment, adding many regulations on drug manufacturing, pricing, and exporting. High competition in the pharmaceutical market, either locally or internationally. EGP devaluation means higher costs as c.70% of PHAR’s supplies are in USD.
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