Apex Healthcare (Apex)’s 1Q23 core net profit was in line with our and consensus expectations, accounting 23.9% and 24.3% of full year estimates respectively. Net profit rose by 54.0% YoY to RM24.3mn thanks to higher demand for pharmaceutical, consumer healthcare products and medical devices. In tandem Apex recorded core net profit of 24.1mn (+58.8 YoY). Moving ahead, we think demand for overall healthcare industry to remain resilient. Nonetheless, despite resilient earnings growth, we anticipate Apex to record a flattish EBITDA margin of 12-13% in the near term on the back of higher raw material costs and prevailing inflationary pressure. Downgrade to a HOLD from a BUY due to price rally as Apex’s share price has increased by 17.2% YTD. Unchanged TP of RM4.57 pegged at 22x PER (1-SD above mean of 5-year PER) to FY23 EPS of 21 sen.

• Within expectations. 1QFY23 core net profit of RM24.1mn (QoQ: -28.8%, YoY: +58.8%) was in line with ours and consensus expectations accounting 23.9% and 24.3% of full year forecast respectively.

• Dividend. No dividend declared in the current quarter.

• QoQ. Apex’s 1QFY23 revenue up by 11.5% YoY boosted by continued demand for influenza (flu)-related medication. However, its core net profit decreased by 28.9% QoQ due to significant drop in contribution from associate company, Straits Apex of RM4.6mn in the 1Q22 (vs RM14.5mn in 4Q22). EBITDA margin shrank by 1.3ppts QoQ due to higher operating cost by 13% QoQ.

• YoY/ YTD. Top-line and bottom-line increased by 13.8% YoY and 58.8% YoY respectively, attributed to higher demand for pharmaceutical, consumer healthcare products and medical devices. Aside to that, it is worth to note that the construction of the two buildings at XEPA's Cheng campus, which will accommodate expanded Quality Control laboratories and staff service areas, is progressing well.

• Outlook. We like Apex due to the group’s position as an important regional player in pharmaceutical industry and continuous expansion of the group’s product. On a larger scope, we think demand for overall healthcare industry to remain resilient on the back of (i) uptrend in medical tourism, (ii) higher ageing population globally and (iii) growth in medical insurance. Nonetheless, despite resilient earnings growth, we anticipate Apex to record a flattish EBITDA margin of 12-13% in the near term on the back of higher raw material costs and global inflationary pressure.

• Forecast: Unchanged

• Our call. Downgrade to HOLD from BUY rating due to price rally. Note that Apex’s share price has increased by 17.2% YTD. Unchanged TP of RM4.57 pegged at 22x PER (1-SD above mean of 5-year PER) to FY23 EPS of 21 sen.

Source: BIMB Securities Research - 25 May 2023