We reiterate HOLD on Apex Healthcare (Apex) with a higher fair value (FV) ofRM2.95/share (from an earlier RM2.64/share), based on a rolled-forward FY25F target PE of 22x, at 1 standard deviation above to its 5-year average of 18x. No ESG-related adjustments based on our neutral 3- star rating.
We lowered FY24F-26F earnings by 5%-10% due to reduced associate contribution assumptions as Apex’s 1QFY24 core net profit of RM20mil generally came in below expectations, accounting for 21%-22% of our earlier full-year forecast and street’s.
As a comparison, 1Q accounted for 25%-27% of the full-year core net profit for FY22-FY23. No interim dividend was declared as expected.
On a YoY basis, Apex’s 1QFY24 core earnings decreased by 21% despite a flattish revenue mainly due to the drop in Straits Apex Group’s associate contribution as Apex’s effective stake fell to 16% from 40% in 1H2023.
The group recorded an associate loss of RM0.5mil vs. a positive contribution of RM5mil in 1QFY23, further exacerbated by financing costs and amortisation of identified intangible assets for Next Ortho Investment Holdings amounting to RM2mil.
Sequentially, Apex’s 1QFY24 core earnings rose by 6% amid a mild revenue increase of 3% as a 3%-point rise in manufacturing margin to 28% was partly offset by a 1%- point decline in wholesale/distribution margin to 3.7%.
Pending further clarity from an analyst briefing later today, we maintain Apex’s FY24F-FY26F revenue growth of 7.0%- 7.3% albeit with a slightly faster core earnings expansion on higher economies of scale.
Apex plans to submit applications to relevant authorities this year for the expansion of warehouses and second liquid production facilities in a newly-acquired industrial property on a 20.7-acre land in Cheng Industrial Estate, Melaka. Nevertheless, the earnings contribution from this initiative may only materialise beyond 2025.
The stock currently trades at a fully-valued FY25F PE of 23x, 27% premium to its 5-year average of 18x. Also, Apex offers a slight dividend yield of 1.6%.
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