Investment Highlights

• We reiterate HOLD on Apex Healthcare (Apex) with an unchanged fair value (FV) of RM2.64/share, based on FY24F target PE of 20x, at parity to its 5-year average. No ESGrelated adjustments based on our neutral 3-star rating.

• Apex’s 9MFY23 core net profit of RM74mil came in within our expectation, accounting for 79% of our FY23F earnings, but beat street’s at 87%.

• Historically, 9M accounted for 65%-74% of FY18-22 core net profit. However, we expect 2HFY23 to be weaker than 1HFY23 as a result of weaker demand for both consumer healthcare products and flu-related medications, as well as the partial divestment of the group’s orthopaedic business in May 2023, reducing Apex’s effective stake to 16% from 40%.

• Hence, we maintain FY23F-25F earnings. In our core profit calculation, we excluded a 2QFY23 one-off gain of RM304mil from a partial divestment of the group’s orthopaedic business, Straits Apex.

• No dividend was declared in 3QFY23 as expected given that Apex usually declares dividends in 2Q and 4Q results.

• On a YoY basis, Apex’s 9MFY23 core earnings rose by 14% on the back of a revenue growth of 5.9% and 1%-point improvement in EBITDA margin to 12.8%, partly offset by the reduced stake in 16%-owned associate Straits Apex.

• On a QoQ basis, Apex’s 3QFY23 core earnings decreased by 5%, despite a 9% improvement in revenue as a result of Apex’s recent more aggressive sales and marketing initiatives for consumer healthcare products. However, the weaker earnings were mainly due to a lower share of earnings from the reduced stake in 16%-owned associate Straits Apex.

• Going into 4QFY23, we expect revenue and earnings to be lower QoQ due to uncertain demand outlook for consumer healthcare products in the face of slowing economic growth and weakening consumer sentiments. Furthermore, the decline in flu cases in Malaysia could dampen sales of flurelated medications in 4QFY23 (Exhibit 2).

• The stock currently trades at a fairly-valued FY24F PE of 18x, 10% discount to its 5-year average of 20x. Also, Apex offers a slight dividend yield of 2.3%.

Source: AmInvest Research - 30 Nov 2023