Optimax, holds a pivotal position in the eye care sector, standing as the largest private pure-play provider of eye specialist services in Malaysia. Optimax was listed on 18 Aug 2020 in the Ace Market and has completed the transfer of listing to Main Market on 3rd Nov 2022. Optimax has established an extensive geographical presence, encompassing both the eastern and southern regions of Malaysia, with a total of 16 Ambulatory Care Centers (ACCs), 8 satellite clinics and 1 specialist hospital. We are positive on Optimax’s robust expansion plan to extend its footprint in both local and foreign markets. Its growth prospect is expected to be supported by the growing demand for cataract and refractive surgeries fueled by increasing ageing population, unhealthy lifestyle and the usage of electronic gadgets. We initiate coverage on Optimax with an Outperform rating and a TP of RM0.83 based on a 27x PER pegged to FY25F EPS of 3.1sen.

• An established eye specialist provider. Optimax, which was listed on the ACE Market of Bursa Malaysia in August 2020, has completed the transfer of listing to Main Market in Nov 2022. It is the largest private eye-specialist provider in Malaysia, operating 16 ACCs, 8 satellite clinics and 1 specialist hospital in Malaysia. Optimax's operational focus revolves around four primary business segments, which include the treatment of eye diseases and disorders, refractive surgeries, consultation and dispensary services, and aesthetic services including plastic surgery. Additionally, the Group offers supplementary eye-related services, including comprehensive eye examinations, retail of optical wear, and the distribution of food products.

• Robust expansion plan in progress. Optimax plans to open 3 new ACCs at Atria, Kota Kinabalu and Bukit Mertajam by FY24. Meanwhile, the Group has entered into collaboration with Selgate Healthcare to establish the Shah Alam branch in Setia Alam, and has signed a MOU with Sena Resources to operate a comprehensive eye specialist center at the Kempas Eye Hospital located at Johor which aims to attract patients from neighboring countries such as Singapore and Indonesia. Optimax aims to transcend its current status as a well-known brand in the Malaysian market to overseas markets which include Cambodia (started operation in May 2024) and Vietnam.

• Future growth drivers. We believe Optimax’s growth prospect hinges on the growing demand for cataract surgeries fueled by increasing ageing population in Malaysia, whereby proportion of individuals aged 65 years and above has increased from 7.2% in 2022 to 7.4% in 2023, totaling approximately 2.5m people. Furthermore, the surge in diagnosed diabetes cases and the increase usage of electronic gadgets may lead to higher occurrence of eye-related diseases.

• Initiate with an Outperform call. We are initiating on Optimax with a target price of RM0.83 based on a 27x PER pegged to FY25F EPS of 3.1sen. Given a 22.1% upside potential to our target price, we initiate coverage on Optimax with an Outperform rating.

Company Background

Optimax is a multi-award-winning eye specialist services provider based in Kuala Lumpur. Since its first establishment in Taman Tun Dr Ismail in 1995, the Group has serviced over 310,000 patients in 28 years, and has since grown to become a prominent player in the medical ophthalmology industry. It was listed on the ACE Market of Bursa Malaysia in August 2020, and has completed the transfer of listing to Main Market on Nov 2022.

Optimax is under the leadership of CEO Sandy Tan Sing Yee, spearheading the development and execution of marketing strategies aimed at enhancing the Group's brand presence and identifying new business prospects. With 10 years of experience at Optimax, Sandy has worked across various domains including marketing, human resources, and customer service. Prior to her role in 2017, Sandy's father, Tan Sri Dato' Dr. Tan Boon Hock, founded Optimax from its inception, overseeing its expansion into different Malaysian regions and diversification into additional eye specialist services, such as cataract surgeries. Presently serving as Executive Deputy Chairman, Tan Sri Dato' Dr. Tan Boon Hock offers business insights, managerial direction, and strategic counsel to the senior management team. Optimax is also led by a team of key senior management who are also ophthalmologists with vast experience, including Dr. Stephen Chung, Dr. Chuah Kay Leong and Dr. Lam Hee Hong. Optimax has a total of 24 ophthalmologists currently.

Business Overview

As the leading eye specialist services provider in Malaysia, Optimax provides an extensive range of eye-related services, which can be separated into four main categories, including the treatment of eye diseases and disorders, refractive surgeries, consultation and dispensary, and oculoplastic surgery. Additionally, the Group extends its services to encompass a range of other eye-related offerings, such as comprehensive eye examinations, retail of optical wear, and distribution of related consumables and products. Optimax has also obtained the license to offer plastic surgery and aesthetic services.

Treatment of eye disease and disorders makes up the bulk of Optimax’s total revenue. This category includes cataract surgery as well as surgery of other eye diseases. A cataract is a cloudy area in the lens of the eye, primarily caused by ageing. Typically, cataract surgery involves the removal and replacement of the clouded lens with an IOL (intraocular lens). In comparison to other eye procedures, cataract surgery poses the highest risk of complications. However, at Optimax, a bladeless (Femtosecond laser) procedure is used over traditional surgery which significantly reduces the risk of post-surgery complications as it offers a higher degree of precision.

Refractive surgery allows refractive errors such as short-sightedness, longsightedness and astigmatism to be permanently corrected, thus reducing the need for eyewear and contact lenses. Optimax offers a number of refractive treatments including Custom Femto Lasik, Custom Advanced Surface Ablation (ASA), Laser Blended Vision (LBV) and ReLEx SMILE. The two categories of refractive surgery offered by Optimax are laser vision correction and implant vision correction. Laser vision correction involves the reshaping of cornea using laser technology, whereas the latter inserts an artificial lens into the eye to decrease the dependency on eyewear.

Optimax has come a long way since it first started specialising in laser eye surgery in 1995. Since then, refractive surgery has been consistently advancing where a number of different techniques have been developed and practiced at Optimax. The Group carries out refractive surgery in all of its eye specialist centers in Malaysia, performed by its MOH registered surgeons.

Consultation & Dispensary. At Optimax, all patients are required to undergo consultations on their first visit. The two types of consultations practiced at Optimax are the pre-operative and post-operative consultations. During a preoperative consultation, surgeons discuss patients’ eye condition and possible treatments to be performed. The post-operative consultation is a follow-up by the surgeon to evaluate and monitor patients’ healing process.

Oculoplastic surgery is a specialised area of ophthalmology which focuses on the health of the eyelids, orbit, tear ducts and other structures around the eye. This primarily involves procedures on the eyelids and eyebags. It provides both functional and cosmetic treatment for disorders around the eye. It is done for aesthetics purposes and is classified as an elective procedure.

Other related services. In addition to the four main categories of eye specialist services that Optimax offers, it also provides additional related services such as eye examinations. Optimax offers a range of eye health tests which can be taken at any of its eye specialist centers in Malaysia. This includes the lazy eye (Amblyopia) assessment, visual acuity assessment and refraction assessment which. All eye examinations are carried out by their in-house optometrists, to complement their core services.

Optimax is also involved in the marketing of its own brand of food products, under the brand name “Optixanthin”. These products contain astaxanthin, which is a naturally occurring colour pigment (carotenoid) derived from microalgae, and is marketed as an antioxidant food product for the general wellbeing of an individual. Different forms of astaxanthin products are also offered by Optixanthin, namely in a sachet-based beverage (OPTI-I) and in honey (OPTIB).

Tapping into aesthetic and plastic surgery business. Optimax has obtained the license to offer plastic surgery and aesthetic services, marking a strategic expansion in its service portfolio. While the primary focus will be on plastic surgery, the company aims to provide a comprehensive range of aesthetic services geared towards enhancing and restoring customers' appearances. Initially, Optimax specialized in providing oculoplastic surgery, mainly cosmetic treatments for disorders around the eye, concentrating on procedures related to the eyelids and eyebags. With the recent acquisition of the aesthetic license, the company has expanded its scope to offer treatment for all parts of the body. Optimax’s aesthetic services are currently operating in Ipoh ACC and is extending its aesthetic business to the new ACC at Atria Mall, Damansara Jaya.

Growth Drivers

We have identified several growth catalysts poised to propel Optimax's performance, aligning with the surging demand for cataract and refractive surgeries. These catalysts include leveraging on the growing of ageing demographic, the upward trend in the prevalence of individuals with diabetes, and the escalating usage of electronic gadgets contributing to visual impairments. Furthermore, Optimax has strategically outlined its expansion plan, positioning itself to capitalize on these favorable market dynamics and bolster its market presence in both local and overseas.

Prevalence of cataract surgeries. According to data from the Department of Statistics Malaysia (DOSM), Malaysia's demographic profile includes 7.4% of citizens aged 65 years and above. HealthinAging's assessment suggests that within this age cohort, approximately 20% are likely to develop cataracts. Based on these figures, it is estimated that Malaysia is home to around 49,400 elderly citizens with cataracts. Considering only the T20 citizens (monthly household income at RM11,820 and above) who could afford cataract surgery, there would be approximately 234,000 individuals that would undergo cataract surgery, translating into an estimation of RM900k-RM2m cataract surgeries sales to be tapped into within the Malaysian market.

Growing ageing population. The demographic landscape in Malaysia is witnessing a shift in growing ageing population. From 2022 to 2023, the proportion of individuals aged 65 years and above has increased from 7.2% to 7.4%, totaling approximately 2.5m people. This trend underscores the ageing trajectory of the Malaysian population. According to data from the Cataract

Surgery Registry (CSR), the mean age of patients undergoing cataract surgery is approximately 64-65 years old. Malaysia has demonstrated a notable 9-year compound annual growth rate (CAGR) of 9.6% in the number of cataract surgeries performed within the country based on data from the National Eye Database. Given this demographic dynamic, we anticipate a continued rise in the number of cataract surgeries performed by Optimax, as the growing ageing population contributes to increased demand for such procedures.

Increasing number of diabetes individuals. Diabetes, marked by elevated blood glucose levels, presents substantial health risks when left uncontrolled. Individuals with diabetes are at a heightened risk of developing eye-related complications, which can contribute to the onset of cataracts. According to the IDF Diabetes Atlas, the number of diagnosed diabetes cases surged by 3.4 times from 2000 to 2011, and it is projected to increase by 29% from 2030 to 2045. This trend underscores the growing prevalence of diabetes, highlighting the importance of proactive management and the potential impact on eye health.

Increasing usage of electronic gadgets. The widespread adoption of electronic gadgets, particularly smartphones, has become increasingly prevalent in modern society. The global ownership of smartphones among adolescents aged 13 to 16 years surpassed 95% in 2018, marking a notable 22% increase from 2014. This is supported by a 7% CAGR in the number of individuals using internet worldwide has increased over the past 10 years since 2014. Prolonged use of electronic screens which emit blue light, can potentially contribute to progression of myopia and other eye health issues.

Expansion Plans

Optimax currently operates a total of 16 ACCs, 8 satellite clinics, and 1 specialist hospital. The Group is planning to expand its presence into new areas by establishing new ACCs in Atria (target commence operation by 2QFY24), Kota Kinabalu and Bukit Mertajam (renovation completed for both ACCs, target commence operation by 3QFY24).

Additionally, Optimax has engaged in a MOU with Selgate Healthcare SB to manage a comprehensive eye specialist center exclusively for the Selgate group, which the first ACC to be established at Shah Alam branch in Setia Alam. Meanwhile, Optimax has also signed a MOU with Sena Resources to operate a comprehensive eye specialist center at the Kempas Eye Hospital located at Johor.

The Group aims to achieve global recognition in its field, transcending its current status as a well-known brand within the local and foreign market which includes expansion into Cambodia and Vietnam.

Expanding aesthetic services. Optimax is currently setting up a new ACC in Atria, Damansara Jaya, which the renovation has completed and targeted to commence operation by 2QFY24. This ACC will be equipped with four operating theatres (OT), with two dedicated to eye surgery and the remaining two allocated for aesthetic services. On 4th June 2024, Optimax has announced that the Neumax Clinic at Atria Mall has successfully obtained the aesthetic service license, which allows the company to provide a comprehensive range of services including cosmetic injection, laser treatment as well as skin rejuvenation therapy.

Establishing a foothold in East Malaysia. Meanwhile, Optimax's forthcoming ACC in Kota Kinabalu has finished its renovation and is targeted to commence operations by 3QFY24. This will mark its second ACC in East Malaysia, following the existing clinic in Kuching, Sarawak. Positioned strategically in the Kota Kinabalu town area, the clinic will operate a total of two OTs. Optimax is currently in the process of preparing documents for submission to the local municipal authorities.

Strategic location for new eye specialist hospital. Optimax plans to establish an eye specialist hospital in Kempas, with construction anticipated to complete by 4QFY24 and aimed to start operation by FY25F. This initiative is targeted to seize and meet the projected rise in demand for eye treatment services, particularly from neighboring countries such as Singapore and Indonesia. Based on Immigration Department of Malaysia, the number of tourist arrivals in FY23 from neighboring countries such as Singapore, Indonesia and Thailand to Malaysia has increased and back to near pre-pandemic level. With the anticipated completion of the Johor Bahru – Singapore Rapid Transit System (RTS), we believe this will further boost the demand for eye treatment services with enhanced travel convenience from Singapore to Johor, Malaysia for medical purposes.

According to the MOU, Sena Resources will bear the entire construction cost, while Optimax will lease the Eye Hospital for a minimum tenure, subject to additional commercial terms regarding the rental of the Land and Eye Hospital. Optimax will be responsible for procuring the necessary medical and specialist equipment, as well as disposable items required to operate a comprehensive eye specialist center at the Eye Hospital.

Collaborative venture between Optimax and Selgate Healthcare. Optimax has engaged in a MOU with Selgate Healthcare SB to manage a comprehensive eye specialist center exclusively for the Selgate Group. Selgate Group is a subsidiary of Perbadanan Kemajuan Negeri Selangor (PKNS), aims to become a significant private healthcare operator, with plans to complete and run seven hospitals within areas in Selangor, KL and Johor Bahru. Selgate will provide Optimax with the necessary facilities at the designated Selgate Group of Hospitals, according to agreed-upon rates, tenure, and other commercial terms. Meanwhile, Optimax will be tasked with procuring the medical and specialist equipment, as well as disposable items essential for operating a comprehensive eye specialist center at the clinic. Based on the MOU, both parties agree to establish the Shah Alam branch of the Selgate Group of Hospitals in Setia Alam, marking the commencement of their collaboration. Construction is projected to conclude by the 4QFY24, with operations expected to commence by early 2025.

Expanding beyond local to Cambodia. Optimax has started its operations in Cambodia on 3rd May 2024, located at The Exchange Square, Phnom Penh. We view this expansion positively as it capitalizes on the increasing demand for eye treatment procedures. This strategic move is further supported by the trend of c. 30-40 Cambodian patients traveling to Malaysia for eye treatments. Currently, the surgeries and operations in Cambodia ACC are led by Dr. Stephen Chung.

Financial Highlights

Robust revenue and earnings growth. Optimax’s revenue has been growing steadily, at a CAGR of 21% over FY16-23, on the back of the increased demand in both refractive and cataract surgeries. Before pandemic, revenue growth from FY16-18 primarily stemmed from increased revenue in refractive surgery and cataract surgeries, alongside with a rise in average revenue per eye attributable to the increase in number of SMILE laser vision correction procedures performed. However, due to Covid-19 pandemic and the imposition of Movement Control Order (MCO), Optimax’s revenue declined 7.3% YoY to RM58.02m in FY20 attributable to the inability of patients to undergo eye surgeries and related treatments. Nonetheless, Optimax’s revenue rebounded strongly in subsequent FY21-23, supported by increasing patient volumes due to the easing of Covid-19 related restrictions and opening of new ACCs.

Optimax’s net profit margins were falling from 21% to 9% within FY17-18, mainly due to the acquisition of 3 new eye specialist centers (including Ipoh, Sri Petaling and Johor Bahru), which lead to higher salary cost, administration and office expenses. Nonetheless, Optimax’s net profit margin recovered in FY19 to 13%, attributable to higher revenue and lower effective tax rate. Due to the pandemic, net profit dropped 28% YoY to RM5.64m in FY20 from RM7.83m in FY19. The decline was mainly impacted by accrue staff costs, depreciation expenses, finance costs and other administrative expenditures. Earnings rebounded sharply after pandemic, achieving a net profit margin of 14% in FY21-22. In FY23, Optimax incurred higher staff and administrative costs upon opening 3 new

ACCs, 4 new optometry centers and 1 new satellite clinic, leading to a drop of net profit margin to 11%.

Forecasting 3-year net profit CAGR of 15%. We expect Optimax to post a strong 3-year net profit CAGR (FY23-26F) of 15%, driven by establishment of 3 new ACCs located at Atria, Bukit Mertajam and Kota Kinabalu in FY24F. Considering their strategic locations, we project an approximate one-year gestation period for each ACC, during which we expect a positive influx of new patients. Meanwhile, collaboration with Selgate on the opening of Shah Alam ACC is expected to commence operation by FY25F. The opening of new ACCs is anticipated to bolster the number of surgeries performed and hence, making meaningful contribution to bottomline beyond FY25F.

We are positive on the development of Kempas Hospital which is expected to commence operations by 1HFY25F, with a projected gestation period of 2-3 years. With strategic location at Johor, this will attract a greater number of medical tourist patients from Singapore and Indonesia.

The commencement of operations in Cambodia marks Optimax's entry into the international market. We are optimistic about this expansion, as it capitalizes on the increasing demand for eye treatment procedures and addresses the rising trend of Cambodian patients. However, given that Optimax is entering a relatively new market, we anticipate that the company will need a longer timeframe for branding and marketing efforts to attract new customers. Therefore, we expect the Cambodia ACC to experience a gestation period of at least one year before reaching breakeven at the PAT level.

Dividend payout. Optimax does not have any dividend policy in place at the moment, but the Group has been able to maintain an attractive dividend payout ratio of 83%/79%/76% in FY21-23 respectively.

Key Risks

Highly dependent on skilled ophthalmologists. Optimax’s position as a private eye specialist provider is closely linked to the reputation of the ophthalmologists and the quality of the eye specialist services provided, which contributes to the awareness and recognition of the brand in the market. Patients often choose services based on the reputation of the eye surgeons.

Risks of medical claims, regulatory actions and professional liability associated with its business operations. Optimax faces potential exposure to malpractice, medical, or negligence claims due to alleged misconduct or deficiencies in its services. In 2012, two medical negligence claims were filed against Optimax Eye Specialist Center (OESC) and one of its doctors. The claimants asserted, among other allegations, that OESC lacked properly trained staff and that the attending doctor was negligent in performing cataract eye surgery for both cases. Subsequently, the parties reached a consent judgment with Optimax Eye Specialist Center (OESC) on a basis without admission of liability. In 2017, OESC paid RM210,000 in ex-gratia compensation to the claimants as a full and final settlement of the claims.

Dependent on certain suppliers. Optimax relies heavily on specific suppliers for surgical kits and supplies necessary for surgeries conducted with corresponding brands of equipment. For instance, Optimax relies on Carl Zeiss Sdn Bhd for the provision of surgical kits, medical supplies, and consumables, including implantable lenses, as well as for the maintenance of ophthalmological equipment necessary for procedures, particularly laser vision correction such as SMILE and Customised FemtoLASIK, as their machines and equipment are exclusively compatible with only supplies from Carl Zeiss Sdn Bhd. We believe any temporary or permanent disruption in the delivery of operational equipment, surgical kits, or medical supplies from Carl Zeiss to Optimax would result in surgery deferments or cancellations for the latter, thereby adversely affecting revenue and margins.

Weakening consumer sentiment. Given the non-essential nature, demand for refractive surgeries may be influenced by external factors such as economic and social conditions. In periods of economic downturn characterized by reduced consumer sentiment and tightened consumer expenditure, demand for its refractive surgeries may decline. Patients may choose eyewear or contact lenses as alternative options for corrective measures. This would negatively impact Optimax’s business operations and financial performance.

Risk of Covid-19 or related disease outbreak. The occurrence of COVID-19 or similar contagious diseases poses a potential threat to Optimax’s business operations. During the Movement Control Order (MCO) period, Optimax suspended the eye surgeries and rescheduled procedures for a later time, after the MCO was lifted. Additionally, several specialist centers were temporarily closed as part of the Group's preventive measures during the MCO period. With the COVID-19 outbreak now reduced and under control, we do not anticipate this to post any significant threat to Optimax's operational business.

Valuation

We like Optimax for its strong financial track record and its position as one of the leading pure-play eye specialists in Malaysia. We believe Optimax’s growth is warranted with the growing demand of both cataract and refractive surgeries, coupled with the Group’s progressive expansion plans.

We are initiating coverage on Optimax with a target price of RM0.83 based on a 27x PER (near its 3-year average mean) pegged to FY25F EPS of 3.1 sen. We adopt the P/E ratio as our valuation methodology for Optimax, considering it the most suitable approach to reflect the potential of a robust near-term earnings growth. We believe the multiple is justified, given Optimax’s relatively small market capitalization. We conservatively ascribe a 10% discount to the average PE of regional peers. With a 22.1% upside potential to our target price, we initiate coverage on Optimax with an Outperform rating.

Source: PublicInvest Research - 11 Jun 2024