ApexH has achieved another record-high year in net profit at RM101m (+69.9% YoY), backed by higher revenue posted by group, agency, and overall brands, while the total exports have seen a 32.2% YoY growth. Following its 4QFY22 results briefing, we revised up our FY23-25F forecasts by 16-19% to factor in higher revenue from share of associate, Straits Apex Group (SAG), which its current order on hand fulfilled c.55% of FY22 revenue as at Feb 2023. However, we believe ApexH is facing a challenging year ahead due to the normalisation of demand for its core respiratory products as we enter the endemic phase, margin pressures from increasing electricity and labour costs, as well as rising raw material prices of active pharmaceutical ingredients (APIs). We believe its share price has already priced in the positive impact from SAG, hence we maintain our Neutral call on ApexH with a revised TP of RM3.83 (previously RM3.31) based on 20x 1-year forward PER.

• Record high revenue and net profit. ApexH’s ended strong in FY22 with all-time high revenue of RM877.74m (+13.9% YoY) and net profit of RM101m (+69.9% YoY). The overall revenue was supported by strong market demand for respiratory illness related products in Malaysia, Singapore, and international markets. Total group exports (7.7% of the total revenue) have grown by 32.2% YoY in FY22, due to the resumption of export sales to Hong Kong, Myanmar, Brunei, and Agenesia medicated powder to Nigeria.

• Rising cost. Management guided that the group will be impacted by higher electricity costs, which are expected to rise by RM2.1m-RM2.7m, while labour costs are expected to increase by RM0.6m in FY23. To mitigate high cost and escalating prices of APIs due to drug shortages, management may attempt to pass on escalating cost to consumers, depending on the dynamics of demand and supply throughout different regions customers.

• SAG benefited from trade diversion. We gather that SAG’s current order on hand fulfilled c.55% of FY22 revenue as at Feb 2023, while capacity is fully utilised. An additional 30% production expansion plan is expected to commence by March 2023. SAG’s 4QFY22 revenue surge was mainly due to the clearance of backlog order and gain from the trade diversion with new orders as its competitors from Europe and US were facing disruption in production lines. Stripping off the RM4.16m reversal impairment, management is confident to retain current orders with timely delivery and thus sustaining SAG earnings until 1HFY23.

• Expansion plan still in discussion. ApexH has added the 3rd liquid production line and 2nd blister packing line (+36% of total production capacity for tablets & capsules) in FY22. For FY23, expansion plans are currently still in discussion.

• Earnings may be stable at 1HFY23. Moving into the endemic phase, demand momentum for respiratory products is expected to carry on in 1HFY23 but should normalise in 2HFY23. Given the hike in raw material costs, rising API and shortages in drugs supply, we think the group may not be able to retain the same earnings growth in full FY23 as FY22 ended on a high base.

Source: PublicInvest Research - 28 Feb 2023