Apex Healthcare’s (ApexH) 2QFY23 net profit increased to RM329.5m, mainly due to total of RM304.4m one-off gain from the divestment of Straits Apex SB to Quadria Capital through its 40% associate Straits Apex (SAG). After stripping off the non-operating items, ApexH’s 2QFY23 core net profit increased by 7% YoY to RM25.1m. The results beat both our and consensus estimates at 65% and 57% of full year forecast respectively. The discrepancy in our forecasts was mainly due its lower-than-expected operating costs on selling and marketing expenses. We maintain our FY23-25F earnings as we expect demand for Covid related products would continue to normalise in 2HFY23. All told, we maintain our Neutral call on ApexH, with a revised TP of RM2.41 (from RM3.81) due to the 1:2 bonus issue, based on 19x (from 20x previously) 5-year historical mean on FY24F EPS. On a side note, ApexH have also declared an interim dividend of 2.5sen per share.

• Revenue. ApexH’s revenue stood at RM215m (+2.8% YoY) in 2QFY23, mainly attributed by a stronger sales volume in pharmaceuticals, consumer healthcare products and medical devices for both private and public sector customers. ApexH’s wholesale and distribution segment increased by 4.9% YoY to RM17.4m while the manufacturing and marketing segment recorded a decline of 16.4% YoY to RM197.6m.

• Net profit. ApexH’s 2QFY23 net profit jumped to RM329.5m, mainly due to a total of RM304.4m non-recurring gain recognized by SAG. Stripping off the non-operating items, core net profit was at RM25.1m in 2QFY23 (+7% YoY). The increase in net profit was due to the spillover effect from the strong demand for pharmaceuticals, consumer healthcare products and medical devices following the reopening of the economy in 2022. In addition, PBT margin (after excluding non-recurring gain) dropped by 2.3ppt to 11%, mainly due to higher operating cost as a result of inflationary pressure.

• Outlook. We believe demand for ApexH’s key brand products will remain intact attributed to the group’s continuous commitment in brand management. However, we are cautious on the normalisation of demand for Covid-related products, as well as escalating cost due to rising imported raw material prices caused by supply chain disruption and inflationary pressure in the near term.

Source: PublicInvest Research - 24 Aug 2023