Apex Healthcare (Apex)’s 1HFY23 core net profit of RM51.1mn (YoY: +31.0%) was in line with ours but above consensus expectations accounting 50.8% and 57.3% of full year forecast respectively. Apex’s top-line up by 8.4% YoY in 1H23 on the back of consistent demand for pharmaceuticals, consumer healthcare products, and medical devices. After stripping out a one-off gain of RM302.4mn from non-recurring gain on disposal recognized by its associate company Straits Apex Group Sdn Bhd (SAG), Apex recorded core earnings of RM51.1mn (+31.0%). Going ahead, we think that due to this stake divestment, Apex will deliver slower earnings growth as a result of dilution impact from Straits Apex Sdn Bhd. Maintain HOLD rating with a lower TP of RM2.75 (from RM3.01) pegged against lower PER of 19x (which is in-line with its mean of 5-year PER) to FY24 EPS of 14.5sen.

• Within expectations. 1HFY23 core net profit of RM51.1mn (YoY: +31.0%) was in line with ours but above consensus expectations accounting 50.8% and 57.3% of full year forecast respectively.

• Dividend. The group declared a DPS of 2.5sen which was lower than 1H22 DPS of 3sen. We are estimating a total FYE23 DPS of 6.3sen, which would result in a yield of 2.5%.

• QoQ. Apex’s 2QFY23 revenue declined by 12.5% while its core net profit increased by 12.0% QoQ due to strong demand for XEPA products especially in Singapore. Note that manufacturing of in-house pharmaceutical products such as XEPA enjoys better margins than the wholesale and distribution division.

• YTD. Apex’s top-line up by 8.4% YoY in 1H23 on the back of consistent demand for pharmaceuticals, consumer healthcare products, and medical devices. In tandem, the group recorded higher net profit of RM353.8mn (>100%) in 1HFY23. Nonetheless after stripping out a oneoff gain of RM302.4mn from non-recurring gain on disposal recognized by SAG, Apex recorded core earnings of RM51.1mn (+31.0%). Following the divestment, SAG’s equity interest in Straits Apex Sdn Bhd (SA) is reduced to 16% from 40%. Going ahead, we think Apex will deliver slower earnings growth as SA is one of its earnings growth driver of late.

• 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. Nonetheless, despite decent 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.

• Our call. No change to our earnings forecast. Maintain HOLD rating with a lower TP of RM2.75 (from RM3.01) pegged against lower PER of 19x (which is in-line with its mean of 5-year PER) to FY24 EPS of 14.5sen. We think that the current valuation of the company is fair given the following factors namely (i) dilution impact from 26% equity disposal of SA, as well as (ii) inflationary pressure concern.

Source: BIMB Securities Research - 24 Aug 2023