Investment Highlights

• We initiate coverage on Alpha IVF Group (Alpha) with recommendation at a fair value (FV) of RM0.42/share, w offers a total potential return of 31% (29% potential capital and 2% dividend yield).

• The FV is based on an CY25F target PE of 28x at a 13%- premium compared to the average valuation of 25x of local p 26F and 21x of regional peers. Nevertheless, this implies a PEG r of 1.8, which is lower than local peers’ average of 3.0 5.8 comparable to regional peer Monash IVF’s 1.7. 5.

• Hence, we believe the premium is justified given Alp 1.5 strategic advantage in a region with low in-vitro fertilisation ( 0.4 penetration rates, best-in-class clinical pregnancy rate 1.0 superior PAT margin compared to local and regional peers 0.9 1.4 well as opportunity to tap into Indonesia’s healthcare market ascribe a neutral 3-star ESG rating to the company. 0.3 2.

• Alpha is a fertility care specialist focusing on the provisio 0.8 assisted reproductive services (ARS), especially IVF serv nm with 3 specialist centres in Malaysia and one in Singapore. ARS segment is the largest revenue contributor to Alpha at for FY23.

• We believe Alpha is an investment-worthy stock for the follow reasons:
  
  (a) In the ARS industry, Alpha is widely considered to be the fertility centre in the region. This is evidenced by A commanding the largest revenue share of 38% for fer services in Malaysia and top 3 in Singapore.

  Its strong reputation is supported by Alpha’s remarkably high IVF clinical pregnancy rate/success rate of up to 87.5%, which is substantively better than industry average. The outstanding success rate stems from Alpha’s in-house proprietary System of Systems (SoS).

  (b) Alpha commands a superior FY23 PAT margin of 32% - compared to domestically-listed healthcare facilities’ - 19% and regionally-listed peers’ 4%-22%.
  
  (c) Ambitious expansion plans ahead locally and regionally to drive future growth. Remarkably, we are optimistic on Alpha being selected as a fertility care partner at Health Tourism Special Economic Zone (KEK Sanur) in Bali, Indonesia despite competition from global peers.

  This signifies Alpha's ability to surpass its global competitors and grants the group access to the Indonesian healthcare market, endowed with favourable exemptions, and an opportunity to ride on Indonesia’s "World Class Medical & Wellness Destination" ambition. This opportunity is hardly available to locally-listed healthcare facility providers.

• All in, we project Alpha’s earnings to improve with a CAG 22% in FY23-26F, which is premised on a revenue CAGR of mainly driven by (a) continued recovery of foreign patients commencement of 51%-owned Alhaya International Wom Specialists Sdn Bhd (Alhaya), and (c) local and overs expansions.

• The stock currently trades at an attractive PEG of 1.4 vs. local peers of 3.0.

Source: AmInvest Research - 25 Apr 2024