• Retain BUY on Alpha IVF with unchanged FV of RM0.42, based on 28x CY25 PE. We attach a 3-star ESG rating to Alpha IVF. Our earnings forecast remains unchanged as the Group's 1QFY25 core net profit tracking expectation at 21.3% of our full year estimates.
   
• Alpha IVF's 1QFY25 revenue and core net profit were lower QoQ due to high base effect in 4QFY24 as festive seasons in 3QFY24 has led to patients delaying IVF treatment cycle to 4QFY24. Positively, Alpha IVF's 1QFY25 gross margin remained strong at 59.7% (FY24 : 58.1%; FY23 : 55.7%) mainly attributable to high foreign patients contribution.
• In 1QFY25, Oocyte Pick Up (OPU) cases stood at 770 which was lower YoY and QoQ (4QFY24 : 863; 1QFY24 : 806). However, we are not concerned about the decline in OPU cases as we gather that the Group is in the midst of hiring a new Obstetricians and Gynaecologists specialist with huge clientele base which will improve the capacity utilization moving forward. Currently the implied utilization rate is about 38.5% based on annualized number of OPU cases in 1QFY25. Apart from that, the Group plans to open 2 full- fledged centres, 1 each for FY25 and FY26 with a potential site in Sabah.
• China. Despite conception period for Dragon baby is over, the revenue from Chinese patients has not shown any sign of slowing down. On the contrary, Alpha IVF still saw strong 1QFY25 revenue from Chinese patients at RM6.9 mil, which was more than half of that in FY24. The Group has identified China as key growth market. Thus, Alpha IVF has opened its 1st sales representative office on 4th September 2024 and has identified another location for 2nd sales representative office. These sales representative offices will serve as a gateway for Chinese patients to access Alpha IVF's services and expertise directly. We believe Alpha IVF will continue to benefit from regulatory arbitrage as Preimplantation Genetic Testing is not allowed in China.
• Indonesia. Alpha IVF is currently negotiating land lease agreements for its full fledge IVF centre in Bali and has planned to open 4 satellite clinics in Indonesia with 2 each in FY25 and FY26. The Group will set up the first satellite clinic in Jakarta by early 2025.
• Philippines. Alpha IVF entered into strategic joint venture with two respected Filipino doctors to cater to the growing demand for advanced reproductive technologies in the Philippines. Alpha IVF will set up its 1st full-fledged fertility centre in Quezon City, Manila to handle 1,500 OPU annually, which will bring the Group total capacity to 9,500 OPU annually.

Source: AmInvest Research - 23 Oct 2024