Investment Highlights

• We reiterate HOLD on Apex Healthcare (Apex) with an unchanged fair value (FV) of RM2.95/share, based on FY25F target PE of 22x, at 1 standard deviation above its 5-year average of 18x. No ESG-related adjustments based on our neutral 3-star rating.

• We maintain our forecasts following an analyst briefing yesterday with these salient highlights:
  
  ➢ Demand for the group’s pharmaceutical and consumer healthcare products are starting to moderate post- 1QFY24 amid slowing consumption trends and economic uncertainties. Hence, management expects a softer 2HFY24 revenue trajectory.
  
  ➢ Sales for group brands slid 2% YoY to RM78.3mil, comprising a share of 31.5% of 1QFY24 revenue (vs. 32.6% in 1QFY23). This stemmed from some delays in export orders while 1QFY23 benefited from competitors running out of Covid-related stock.
  
  ➢ The group’s 16%-owned Straits Apex Group is expected to struggle to breakeven for the rest of the year due to amortisation charges and finance costs for Next Ortho Investment Holdings which amounted to RM2mil per quarter.
  
  ➢ Wholesale/distribution pretax margin slid 0.8%-point YoY to 3.7% in 1QFY24 due to higher share of low-margin products while 1QFY23 enjoyed a temporary boost for own brands as competitors were out of stock. Going forward, management expects some margin recovery with the normalisation of sales mix over the rest of the current year.
  
  ➢ The state authorities have approved the RM66.5mil acquisition of industrial property, which includes a 20.7- acre land in Cheng Industrial Estate, Melaka, from Panasonic Appliances Refrigeration Devices Malaysia. Management plans to initially utilise the premises for warehousing purposes by consolidating from other properties which are being leased for storage by the group.
  
  There is no visibility yet on the plans to construct the second liquid production facility on this land, which may hinge upon plant utilisation rates reaching above 75% targeted threshold vs. 66% for the group’s current solid capacity and 61% for liquid. At this stage, we have not projected any significant revenue contribution from this investment in our forecasts.

• The stock currently trades at a fully-valued FY25F PE of 22x, 21% premium to its 5-year average of 18x. Also, Apex offers a slight dividend yield of 1.7%.

Source: AmInvest Research - 17 May 2024