Investment Highlights

• We maintain BUY on Apex Healthcare (Apex) with an unchanged fair value (FV) of RM3.33/share, based on an unchanged PER of 23x FY22F EPS. We make no ESG-related price adjustment for our rating of 3 stars.

• Apex’s 1HFY21 net profit of RM24.7mil came within expectations. It accounted for 49% and 44% of our and consensus full-year earnings forecasts respectively.

• We expect the group to report a poorer upcoming quarter due to tighter pandemic restrictions, before a recovery from 4QFY21 onwards underpinned by promising vaccination rates reopening the economy. We believe that pent-up pharmaceutical demand, stronger contributions from associate companies and a resumption of export sales would support earnings.

• Revenue grew by 2% QoQ and 4% YoY to RM182.6mil in 2QFY21 on the back of improved demand from the private sector clinics and hospitals. Lockdown-induced production disruptions prevented stronger revenue growth in the quarter.

• On a QoQ basis, the group experienced a 4% growth in PBT and a +0.2 ppt increase in PBT margins in 2QFY21. This was attributable to a small recovery in its associated company Straits Apex Group Sdn Bhd (SAG), and lower administrative and marketing expenses. Apex has embarked on a cost-cutting process to offset higher raw material and shipping expenses.

• On a YoY basis, PBT was flat at RM16.1mil in 2QFY21. Stronger revenue and lower administrative and marketing expenses helped offset the fall in SAG contributions. On a positive note, Apex said that the bulk of orders meant for SAG has been delayed to 2HFY21, with orders at a similar level to last year. Hence, we believe that Apex’s associate company contributions would be stronger in 2HFY21.

• As for the wholesale and distribution division, Apex posted revenue growth of 4% on a QoQ basis and 6% on a YoY basis in 2QFY21. Demand for pharmaceutical products was driven by rising cases of Covid-19 in 2QFY21.

• Apex has announced an interim dividend of 2.5 sen/share, implying a 48% payout for the year so far. We believe that the full year’s payout will be between 33% and 35%. We forecast a gross DPS of 3.5 sen for FY21E, which translates into a yield of 1.2%.

Source: AmInvest Research - 20 Aug 2021