Investment Highlights

• We maintain our BUY call 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 ESGrelated price adjustment for our rating of 3 stars.

• While we believe that Apex is unlikely to see exciting changes until both local and international pandemic restrictions loosen significantly, the group should be coasting along a gradual path of recovery, as optimistic vaccination rates and pent-up demand bolster pharmaceutical demand.

• Significant improvements in associated contributions are the main driver to stronger earnings in the next few quarters. We believe that Apex’s manufacturing segment will see a slower recovery given the restrictions on factory workforce and exports as well as depressed rates of nonCovid-19 respiratory disease.
   
• Here Are Some Highlights From Last Friday’s Results Briefing:

1. Orders from associated company Straits Apex Sdn Bhd (SA) have the potential to exceed 2020’s contribution. Most of these would be recognised in 2HFY21.
    
2. By the end of September 2021, about 90% of staff are expected to be fully vaccinated. The group is optimistic that this may loosen workforce restrictions, especially in its SA segment.
    
3. Utilisation rates at SPP NOVO remain low at 60% and will likely continue to do so until the economy opens up. The group will defer major expansion plans until pharmaceutical demand returns.
    
4. Pharmaceutical demand recovery remains gradual. Clinical demand showed a 30% YoY increase in 1HFY21 while pharmacy demand recovered by 40% YoY. Both climbed by 6% each QoQ in 2QFY21.
    
5. Rising freight costs and MYR weakening against the USD continue to provide negative earnings pressure. As the volume of Apex’s exported products is low, Apex is less affected by high freight costs
    
6. Despite higher input costs, the group has been preserving margins through a cost streamlining process. The group will not be likely to raise prices for the majority of its products until the economy recovers.
    
7. On the subject of vaccinations, the group does not discount itself being involved in the logistical process should Covid-19 become endemic, requiring regular booster shots. In the short term however, it is unlikely to jump into the bandwagon as major vaccine players have already found local logistical partners

Source: AmInvest Research - 23 Aug 2021