Apex Healthcare’s (ApexH) 3QFY21 net profit declined by 1.5% YoY to RM14m. The weaker performance was mainly due to lower contribution from share of associate profit as the Penang based associate, Strait Apex Group’s (SAG) operations were severely impacted by COVID-19 infections. The results were below our but within street projections at 67% and 71% of full year numbers respectively. The discrepancy in our forecasts was due to lower-than-expected contribution from the share of associate profit. We are cutting our forecasts for FY21-23F by 4-6% as we impute a lower earnings forecast for share of associate profit. As such, our TP is revised to RM2.25 from RM2.35 previously. Given its rich valuation, we maintain our Underperform rating on ApexH.

• Stronger revenue. ApexH reported highest quarterly revenue with a 24.8% YoY growth to RM211.1m. The increase in revenue was mainly due to stronger contribution from its wholesale and distribution segment (+34.7% YoY) and its manufacturing and marketing segment (+20.8% YoY). The strong growth was mainly due to the increase in market demand for pharmaceutical products as a result of increasing orders from customers. The outbreak of COVID-19 in Malaysia during 3QCY2021 had also contributed to the strong growth as there was an increase in demand for pulse oximeters, surgical mask and self-test kit.

• Net profit was down 1.5% YoY. Despite higher revenue, share of profits from its 40%-owned associate company, SAG was lowered by 76.5% YoY to RM0.47m, due to lower production output and higher operating costs. On top of that, new production capacities that were installed during 2HFY20 have also resulted in higher fixed cost for SAG while raw material cost rose on higher freight cost.

• Expect to see gradual improvements in coming quarter. ApexH believes that with secured orders in hand, SAG is likely to deliver higher 4QFY21 earnings. Meanwhile, given the high vaccination rate in Malaysia and the roll out of booster jab, we do not expect reintroduction of full lockdown. Additionally, we believe consumer sentiment should gradually recover, boosting consumer spending which in turn should benefit ApexH.

Source: PublicInvest Research - 18 Nov 2021