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 ESGrelated price adjustment for our rating of 3 stars.

• Apex’s 9MFY21 net profit of RM38.7mil came in within expectations. It accounted for 77% and 71% of our and consensus full-year earnings forecasts respectively. As expected, no dividend was declared in 3QYF21.

• On a QoQ basis, 3QFY21 earnings increased 9% to RM14.0mil. The improvement in earnings is supported by a 16% rise in revenue QoQ. We gather that the demand for Apex products has improved due to heightened consumer confidence and activities. This is within our expectation as Covid-19 cases have been in a downtrend after the surge in vaccination rates in 3QFY21. Strong demand is seen in pharmaceuticals, diagnostics and consumer healthcare products.

• On a YoY basis, 3QFY21 earnings was flat at RM14.0m. The improvement in operating profit by 16% YoY was offset by the decline in contributions from its associate and higher effective tax rate.

• Positive outlook. Demand for pharmaceutical products has improved from both private sector clinics and pharmacies. This has propelled the company’s revenue to record high in 3QF21, exceeding that of the pre-pandemic level. However, we believe the earnings has not improved in tandem to reach record high due to the weakness in its associate earnings but things should improve from FY22 onwards.

• The associate Straits Apex Sdn Bhd’s (SASB) workforce vaccination rate has reached 98% as of 30 Sep. This should lead to a lower risk of infection and quarantine of the staff. We gather that the order book for SASB’s orthopaedic devices and surgical instruments is strong and this bodes well for its future financial performance.

• Maintain BUY. Apex has positioned itself well to benefit from these market trends – ageing population, public health education advancement and steady healthcare expenditure increase. Additionally, the company will not be affected by the prosperity tax. We expect Apex to record an FY22 PBT of RM83.2mil (less than RM100mil).

Source: AmInvest Research - 18 Nov 2021