Apex Healthcare’s (ApexH) 1QFY22 net profit increased by 32.8% YoY to RM15.8m. The stronger performance was mainly due to higher market demand for pharmaceuticals products. The results were within both our and street projections at 24% of full-year numbers. We revise our forecasts for FY22-24F by 2-3% due to book keeping adjustment. As we roll over our valuation to FY23F EPS, our TP is subsequently revised to RM2.84, based on 20x PER (5-years historical mean). In the long-term, ApexH should benefits from the favourable demographic trend though short-term performance might be impacted by rising inflation and supply chain bottlenecks. As such, we maintain our Neutral call on ApexH.

• Stronger revenue. ApexH reported a 20.3% YoY increase in revenue to RM215.9m. The increase was mainly due to stronger contribution from its wholesale and distribution segment (+20.2% YoY) and its manufacturing and marketing segment (+22.2% YoY), underpinned by the increase in market demand for pharmaceuticals products. We attribute this to improving consumer confidence, especially for products relating to cough and cold given the milder symptom delivered by Omicron variant. Additionally, ApexH ventured into Latin America market for the first time by exporting contract manufactured Eye-Mo eye drops to Mexico and delivered a third contract manufactured drug used for the treatment of dementia related to Alzheimer’s disease to the Australian market in 1QFY22.

• Net profit. In tandem with higher revenue, ApexH’s net profit improved by 32.8% YoY to RM15.8m. This was mainly due to higher share of profits from its 40%-owned associate company, SAG, which added 153.1% YoY to RM0.86m. This was despite a drop in Jan and Feb production as its workforce was affected by Covid-19 infections and exacerbated by persistent supply chain disruptions of certain components and services. However, management has guided that the situation has since improved with the infection numbers subsiding from mid-March. In addition, PBT margin has improved by 0.6ppt to 9.2%.

• Outlook. In the long term, we expect ApexH to benefit from the current market trend of an aging population where the demand for pharmaceutical products should increase. However, the supply chain bottleneck and elevated raw materials as well as freight cost might tempered ApexH’s performance in the short term.

Source: PublicInvest Research - 19 May 2022