• Upgrade to HOLD (TP: RM2.51). Apex Healthcare (Apex)’s 1HFY24 top-line grew by +5.7% YoY driven by enhanced sales and marketing efforts, strong performance from recently acquired distribution agencies, and the continuous launch of new Group-branded products. Bottomline declined significantly by 87.2% YoY to RM47mn in 1HFY24. However, after excluding several exceptional items, including a one-off gain of RM304.4mn in 1HFY23 from the group’s share of the gain recognized by associate SAG following the divestment of a 60% equity stake in SA to Quadria Capital, core net profit decreased by a smaller margin of 4.3% YoY. The result was in line with our expectations but above consensus, accounting for 45.0% and 62.5% respectively. The company announced an interim DPS of 3sen which is higher than 1H23 DPS of 2.5sen. We upgrade our recommendation to HOLD from SELL as we revise our target price upwards, rolling over our valuation base. Our revised TP is RM2.51 (from RM2.41), pegged against a PER of 16.6x, representing -0.5 SD of the 5-year PER to FY25 EPS of 15.1sen.

• Key highlights. On a quarterly basis, Apex’s 2QFY24 revenue increased by +11.0% YoY due to better sales of pharmaceuticals, consumer healthcare products and medical devices. It is worth to note that in the 1H24, the group successfully launched nine new products, including probiotics, gastrointestinal medications, and topical preparations for the skin, nose, and throat, offering consumers more options for managing their medical conditions. Meanwhile, its core net profit declined by -4.6% YoY due to a lower share of earnings from associate SAG.

• Earnings Revision. No changes to our forecast.

• Outlook. Looking forward, we expect a better quarter for Apex, driven by continued resilient demand for pharmaceutical and healthcare products from both private and public sectors. We believe that this will also be supported by increased consumer health consciousness following the World Health Organization's declaration of the monkeypox (mpox) outbreak as a public health emergency of international concern, alongside rising mpox cases in regional countries. Additionally, with local private hospital players focusing on organic expansion, we anticipate higher sales of pharmaceuticals, consumer healthcare products, and medical devices.

Source: BIMB Securities Research - 22 Aug 2024