• 9M23 core net profit of RM9.7m was 54%/58% of our/Bloomberg consensus’ FY23F forecasts as revenue dip and higher costs led to lower margins.

• Costs incurred for the operation of its new ACCs should lead to FY24F revenue growth, at the expense of 4Q23F margins, in our view.

• Reiterate Add, with a lower GGM-based (previously P/E-based) TP of RM0.84. This note marks the transfer of coverage to Lew Cheng Wei.

Revenue Decline and Higher Costs Sink 3Q23 Core Net Profit

9M23 EBITDA/core EPS disappointed at 61%/54% of our FY23F forecasts (66%/58% of Bloomberg consensus), driven by 3Q23 yoy decline in revenue. Coupled with higher staff costs, higher depreciation and preoperational costs, 3Q23 core net profit tumbled 30.7% yoy to RM2.8m, while 9M23 core net profit of RM9.7m was 14.5% down yoy.

Festive Season Historically Leads to Fewer Surgeries

Optimax Holdings saw its revenue dip slightly by 0.6% yoy in 3Q23, which management attributed to a lack of doctors during the month of Sep, due to: i) 80% of Optimax’s doctors participating in a conference held in Vienna for a week, and ii) many doctors on a factory visit by the invitation of its supplier Carl Zeiss. Optimax has since hired more doctors, which management said should boost the average utilisation of its operating theatres from 60% currently to 70% by end-4Q23F. While this should help revenue to recover in the coming quarters, we remain cautious as 4Q is generally a weaker quarter for Optimax due to the festive season, which normally sees fewer surgeries.

Staff Hires for Smoother Operations of Upcoming ACCs

Optimax also provided updates on its new ambulatory care centres (ACC) in: i) Atria Damansara Jaya, ii) Kota Kinabalu, and iii) Cambodia. While management guides that these ACCs would likely only be operational by early-FY24F, Optimax has hired additional staff who will need to be trained before the new ACCs start operations. Optimax had also hired operation teams and plastic surgery surgeons in 3Q23 in preparation for its plastic surgery licence, which it obtained on 7 Aug 23. All these factors led to 3Q23 EBITDA margin falling 6.6% pts yoy (-3.3% pts qoq); we believe EBITDA margin could stay suppressed until these new ACCs become profitable in FY24F.

ROE Recovery in FY25F as Optimax Executes Its Expansion Plans

We reiterate Add, with a lower TP of RM0.84 (from RM1.11), based on GGM to better capture its medium-term profitability and growth trajectory. Following a disappointing FY23F, we project a strong rebound in earnings by 15.8%/30.0% in FY24F/FY25F, driven by revenue growth following the opening of new ACCs in Cambodia, Atria and Kota Kinabalu in FY24F, as well as Selgate Hospital and Kempas Hospital in FY25F. The stock has de-rated since the start of 2023 and currently trades at 0.5 s.d. below its 3-year mean P/E of 27.3x since listing in FY20. Re-rating catalyst: strong earnings delivery in FY24-25F. Downside risks: delays in its expansion plans, longer gestation period for its new centres.

Source: CGS-CIMB Research - 4 Dec 2023