Investment Highlights

• We reiterate BUY on Apex Healthcare (Apex), although the share price has increased 9% over the past 3 months, with an unchanged the fair value (FV) of RM3.73/share, based on FY23F PE of 22x. This is at 0.5 standard deviation above its 4- year average of 20x, with a neutral ESG rating of 3 stars.

• Apex’s 9MFY22 core net profit of RM65.2mil came in within our expectation, accounting for 85% of our FY22F net profit, as we anticipate Apex’s 4QFY22F earnings to soften sequentially in view of the normalisation of flu cases and inventory restocking activities in Malaysia.

• Hence, we made no changes to FY22F-24F earnings. We will be providing further updates following an analyst briefing later today.

• However, Apex’s 9MFY22 core net profit came in above consensus, accounting for 89% of consensus net profit forecast. As a comparison, 9M accounted for 65%-74% for FY19-FY21 core net profit.

• No interim dividend has been declared in this quarter as Apex historically declare dividend post-4Q results. With the 3 sen declared in 2QFY21, this remains in line with our FY22F dividend of 6.1 sen/share.

• On a YoY basis, Apex’s 3QFY22 core earnings soared 91% to an all-time quarterly record of RM26.6mil, spurred by: (i) 10% revenue growth from strong demand for cough and cold products due to the prevalence of Covid-19 and elevated flu cases in Malaysia; (ii) better gross profit margin (+1.9ppt) thanks to increased share of higher margin manufacturing division from 7.6% in 3QFY21 to 9.4% in 3QFY22; and (iii)surge in associate contribution of RM7m (+14.8x) from the group’s 40%-owned Straits Apex.

• On a QoQ basis, Apex’s 3QFY22 core earnings rose by 12.5%, in tandem with an 11% revenue growth. The stronger earnings was also attributed to the increased share of revenue from higher margin manufacturing division of 9.4% from 9.2% in 2QFY22.

• Apex has been enjoying strong CAGR growth over the past 20 years with revenue rising at 9% and earnings 10% (Exhibit 3), anchored by an ageing population, public health education advancement and steady healthcare expenditure increase.

• Apex also exhibited resilience and flexibility during the Covid-era via rapid identification and supply of in-demand products. Additionally, Apex’s net cash position of RM136mil represents a significant 8.4% of its market cap.

• The stock currently trades at an undemanding FY23F PE of 20x, at parity to its 4-year average, with decent dividend yields of 1.9%.

Source: AmInvest Research - 17 Nov 2022