• The Securities Commission of Malaysia (SC) recently released its latest list of Shariah-compliant stocks in the November publication. According to the announcement, Apex Healthcare Bhd. (Apex Healthcare) has been reclassified as a Shariah non-compliant counter.

• We reached out to management for their response, including any initiatives to restore their Shariah status. The management clarified that the reclassification was due to a higher proportion of cash held in conventional accounts due to a one-off dividend of RM214.4mn received from the divestment of its associate company, Straits Apex Group Sdn Bhd (SAG), leading to the SC's decision to revise Apex Healthcare’s Shariah status.

• In view of that, we maintain our coverage on Apex Healthcare but with a Non-Rated recommendation.

Higher Conventional Cash Holdings Following SAG Divestment

Apex Healthcare’s reclassification as a non-Shariah counter has been attributed to its higher proportion of cash placed in conventional accounts, exceeding the threshold set by the Securities Commission’s Shariah Advisory Council (SAC). The company’s cash to total asset ratio reached 34.1%, surpassing the SAC’s maximum threshold of 33%. This increase in cash holdings was primarily due to a one-off dividend of RM214.4mn received from the divestment of its associate company, Straits Apex Group Sdn Bhd (SAG), its orthopedic investment.

Plans to Resubmit for Shariah Compliance

We reached out to management for details on any initiatives or mitigating measures to restore their Shariah status. The matter was regularized in 2Q24 following the group's special dividend and they are planning to resubmit for Shariah compliance. In our view, this is likely to result in reinstatement during the May/Nov 2025 review.

Change Recommendation to Non-Rated

We maintain our coverage on the stock but with a Non-Rated recommendation.

Source: BIMB Securities Research - 3 Dec 2024