The Daily Pulse of Bursa Malaysia

Apex Healthcare on investors’ radar signalling higher share price momentum. How high can it go?

Publish date: Tue, 02 Apr 2024, 08:25 AM
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Apex Healthcare Bhd has been gaining traction recently. The counter was on the top gainers’ list on April 1, up 3.4% to close at RM3.05. It is certainly no April’s Fool’s joke as the counter has been climbing despite being given stock downgrades by analysts.

On a year-to-date basis, the pharmaceutical company has risen 22% having touched a 52-week high of RM3.16 from a low of RM2.34 In February, it posted a record FY23 revenue with special dividend of 20 sen, which probably got investors excited.

However, analysts are less positive on Apex Healthcare. Apex’s 4QFY23 core earnings fell 40% on a YoY basis, despite posting a 9% revenue growth. It was dragged by several factors including lower contribution from 16%-owned Straits Apex as a result of reduced equity stake and higher amortisation expenses as well as higher tax expenses.

Straits Apex is an orthopaedic business, which Apex Healthcare pare its stake from 40% to 16% in May 2023. Even as Covid cases are on the rise, Xepa anticipates that demand for flu-related medication in 4QCY23 will not increase materially, possibly due to milder symptoms. As a result, revenue and earnings could be lower QoQ given demand for pharmaceutical products (especially flu-related medications) could experience moderation.

In FY24, Apex Healthcare is expected to register a 7% revenue growth albeit a flattish earnings growth following the lower effective equity stake in SA. Moving forward, Apex plans to submit applications to relevant authorities this year for the expansion of warehouses and liquid production facilities in a newly acquired 20.7-acre land.

However, the earnings contribution from this initiative may materialise only after 2025. After that, further upside will be supported by an organic expansion pipeline, given that the Cheng Industrial Estate production facility in Melaka is fully utilise

The stock is also likely to see higher FY23-25 earnings banking on Xepa-Soul Pattinson (Malaysia)’s (Xepa) long-term expansion plans. Xepa is involved in the development, manufacturing and marketing of off-patent/generic pharmaceutical products and medical devices. The Xepa campus is situated in Cheng Industrial Estate, Melaka, encompassing a 10-acre site.

Analysts anticipate Apex Healthcare’s FY26 earnings to register a 8.5% YoY growth, underpinned by an ageing population, public health education advancement and continuously expanding healthcare expenditure.

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