Investment Highlights

• We maintain BUY on Alpha IVF Group (Alpha) with an unchanged fair value (FV) of RM0.42/share, based on an CY25F target PE of 28x at a 13%-37% premium compared to the average valuation of 25x of local peers and 19x fo regional peers. This implies a PEG ratio of 1.7, which is lower than local peers’ average of 2.9. We ascribe a neutral 3-star ESG rating to the company.

• Our forecasts are maintained following an analys briefing yesterday with these salient highlights:
   
  • FY24 net profit of RM52.9mil includes listing expenses o RM2.4mil (which mainly drove up administration expenses by 72% YoY). If excluded, FY24 net profi translates to RM55.3mil and 1% above our earlier forecas instead of 3% below.
     
  • FY24 revenue rose 22% YoY to RM168mil in tandem with a 15% increase in oocyte pick up (OPU) to 3,093 and increase in revenue share of foreign patients to 60.4% from 50.9% in FY23 as medical tourists tend to selec more procedures and being billed higher consequently.
     
  • Revenue from Indonesian patients increased 44% YoY to RM57mil while China surged 3.8x to RM12.6mil, which s still half of pre-pandemic levels. Chinese medical tourists are expected to continue growing as the country’s IVF (In Vitro Fertilisation) technology lags Alpha’s due to the government’s strict policy on gender selection.
     
  • 4QFY24 gross profit margins rose to 59.8% from 57.4% in 1QFY24 due to the higher billing premium from foreign tourists together with improved economies of scale from a higher revenue base.
     
  • Expected to be revealed over the next 1-3 months - - management has identified 2 potential sites for its fourth domestic IVF centre which could cover an area of 8k-9k sq feet and cost RM9-10mil,
     
  • Likewise, Alpha has won the competition to set up an IVF centre of excellence at the healthcare special economic zone in Sanur, Bali, beating rivals from Australia, Korea Indonesia and Thailand. This full-fledged clinic, expected to cost RM27mil and built on a 1.5-acre land with a 30-yea lease, is expected to be profitable in the first quarter o operation.
     
  • Alpha’s IVF centres will grow from 3 currently to 5 by end FY25 and 8 over the next 2 years. These include anothe domestic IVF centre and 2 more in Southeast Asia by end FY26F. To date, Alpha has only spent RM6mil of the RM116mil raised from IPO proceeds. Hence, managemen expects the capex for these expansions to be internally funded.
     
  • When the Bali centre and 4 satellite clinics in Indonesia have been established and operate at higher selling price points relative to Malaysia, management does not expect cannibalisation of Indonesian medical tourists to Alpha’s domestic centres in Penang or Kota Damansara. These facilities in Indonesia are targeted for patients in the hinterland and Surabaya who do not wish to travel outside of the country.
     
  • Alpha’s declared DPS of 0.45 sen and pre-IPO dividend of 0.698 sen translates to a FY24 total payout of 100.8%. Management continues to guide for a minimum distribution policy of 60% going forward, which is in line with our assumptions.

• With a net cash of RM151mil (10% of market cap), the stock currently trades at an attractive PEG of 1.4 vs. local peers of 2.9. We believe this is unjustified given Alpha’s strategic advantage in a region with low IVF penetration rates, best- in-class clinical pregnancy rate and superior PAT margin compared to local and regional peers, as well as opportunity to tap into Indonesia’s substantively larger healthcare market.

Source: AmInvest Research - 19 Jul 2024