Investment Highlights

• We maintain our BUY call on Apex Healthcare (Apex) with a lower fair value (FV) of RM3.33/share (vs. RM3.77/share previously) based on a lowered PER of 23x FY22F EPS. We make no ESG-related price adjustment for our rating of 3 stars.

• We reduce our PER to 23x from 26x as we no longer believe that Apex is poised to benefit in any significant means from the logistical support to the national vaccination programme.

• Apex’s 1QFY21 net profit of RM11.9mil came in below expectations. It accounted for 20% of our and consensus full-year earnings forecasts. This was attributed to poor local pharmaceutical demand and export sales. Additionally, weaker demand for prosthetics and surgical equipment has likewise impacted STRAITS, the group’s contract-manufacturing arm.

• Thus, we lower our FY21F earnings forecast by 17% to take the aforementioned issues into consideration. Our FY22F/FY23F forecasts remain unchanged.

• Going forward, recovery prospects in 2HFY21 are dampened, following the high number of Covid-19 cases pushing down global clinical pharmaceutical and surgical demand.

• However, we are still optimistic of a solid FY22F, predicated on a more stable recovery in patient volumes as the effects of the vaccination process finally begin to take place. Additionally, we believe that pent-up demand from non-urgent cases will benefit all three of the group’s main divisions.

• On a QoQ basis, the group saw a recovery in revenue, boasting an 11% increase to RM179.5mil in 1QFY21. The group experienced a 7% decrease YoY, though this is due to base effects from supernormal profits brought by the pandemic-induced heightened demand last year.

• The group experienced a fall in PBT by 14% YoY and 16% QoQ in 1QFY21, largely as result of lower contributions by its associate company, STRAITS. This is due to lower sales revenue and higher operating expenses arising from new production capacity committed before the pandemic.

• All three of the group’s segments experienced a drop in revenue and earnings on a YoY basis in 1QFY21. While the group saw an improvement in its manufacturing and wholesale arms on a QoQ basis, weak profit contribution from its corporate segment weighed on earnings.

• The group did not announce any dividend for the quarter.

Source: AmInvest Research - 21 May 2021