Investment Highlights

• We reiterate HOLD on Apex Healthcare (Apex) with an unchanged ex-dividend fair value (FV) of RM2.64/share (ex- date on 15 May 2024), based on a FY24F target PE of 20x, at parity to its 5-year average. No ESG-related adjustments based on our neutral 3-star rating.

• We maintain FY24F-25F earnings as Apex’s FY23 core net profit of RM93mil generally came in within expectations, coming in 1% below our forecast and 3% of street’s. In our core profit calculation, we excluded the revised one-off gain of RM322mil from a partial divestment of the group’s orthopaedic business, Straits Apex (SA).

• In addition, we introduce FY26F earnings with a 8.5% YoY growth, underpinned by an ageing population, public health education advancement and continuously expanding healthcare expenditure.

• The group declared a final dividend of 2.5 sen/share and special dividend of 20 sen/share in 4QFY23, bringing FY23 total dividend to 25 sen/share (implying a payout of 193%). As a comparison, our FY23F DPS of 5.5 sen/share excludes Apex’s partial distribution of the cash proceeds received from 40%-owned Strait Apex Group (SAG). Hence, we maintain FY24F-25F DPS and introduce FY26F dividend of 6.5 sen.

• On a YoY basis, Apex’s 4QFY23 core earnings deteriorated by 40% despite a 9% revenue growth. This was primarily attributed to: (a) lower contribution from 16%-owned SA as a result of reduced equity stake and higher amortisation expenses as well as (b) higher tax expenses.

• On a QoQ basis, Apex’s 4QFY23 core earnings decreased by 21% despite a flattish 2% improvement in revenue. The weaker earnings were mainly impacted by (a) lower gross profit margin of 21.5% (-2.1%-point QoQ) as a result of lower revenue share from higher-margin manufacturing segment, (b) lower contribution from SA as a result of higher amortisation costs, and (c) higher tax expenses.

• Going into FY24F, we expect Apex to register a 7% revenue growth albeit a flattish earnings growth following the lower effective equity stake in SA from 40% to 16% since May 2023. In addition, Apex plans to submit applications to relevant authorities this year for the expansion of warehouses and liquid production facilities in a newly acquired 20.7-acre land. Nevertheless, the earnings contribution from this initiative may materialise beyond 2025.

• The stock currently trades at a fairly-valued FY24F PE of 21x, 5% premium to its 5-year average of 20x. Also, Apex offers a slight dividend yield of 1.8%.

Source: AmInvest Research - 22 Feb 2024