Apex Healthcare (ApexH) recently proposed to undertake a one-for-two bonus issue with an entitlement date to be determined later. Post bonus issue, assuming all outstanding ESOS options are exercised ApexH’s enlarged number of issued shares will increase to 721.3m. We are positive as we think that the bonus issue will enhance the marketability and liquidity of its shares, thereby making it more appealing to a wider base of shareholders. Should the proposed bonus issue go through, our TP will be adjusted to RM2.60. We remain our Neutral call on ApexH, with an unchanged TP of RM3.83, based on 20x 1-year forward PER FY23F EPS.

• Details of proposal. ApexH’s issued share capital of RM130.06m consists of 477.7m shares. With the assumption of a total of 3.2m outstanding ESOS Options being exercised, the bonus issue will bring the share base to 721.3m. The bonus issue shall be issued as fully paid shares at nil consideration and without capitalization of ApexH’s reserves. Meanwhile, the proposed bonus shares will not be entitled to the final single-tier and special dividend of 3.5sen and 2.0sen respectively which was proposed along with the 4QFY2022 results announcement. This is because the entitlement date for the proposed bonus issue will be fixed after the entitlement date for the proposed dividends. The proposed bonus issue is expected to be completed by 2QFY23.

• Rationale. The propose of bonus issue is to reward the existing shareholders. Also, we believe that the larger share base and more appealing share price will help to improve ApexH’s share liquidity, thus attracting higher participation from a wider group of investors.

• No change to fundamentals. While the corporate exercise is unlikely to have any impact on ApexH’s fundamentals, we are positive on the enhanced liquidity and marketability of the shares in the long run. On a per share basis, FY23F EPS will be diluted from 19.6sen to 12.9sen based on the enlarged share base of 721.3m shares. Should the proposed bonus issue go through, our TP will be adjusted subsequently to RM2.60.

Source: PublicInvest Research - 19 Apr 2023