Highlights / Comments

• Sun Healthcare (distribution arm): Adventa provides a holistic solutions package to customers from the distribution of healthcare products and equipment, to inventory management as well as staff management.

• They have recently secured a 3-year contract with Parkway Malaysia, Singapore and Turkey. Contributions may be seen from 2Q15 onwards.

• A new online portal, MyCare (www.mycare.com.my) has been set up, selling health and beauty products as well as professional care products which are not available at other retail healthcare store.

• MyCare also engages in the management of GP’s inventories by delivering prescribed medication directly to the patient’s address.

• A 75,000 sq ft warehouse to be built in Subang, with capex circa RM6.5m, to increase its hospital supplies storage.

• Lucenxia (home renal dialysis / peritoneal dialysis): Under trial phase with expected completion by 1QCY15. Once approved, the Government will implement “PD First” Policy which requires patients to firstly undergo peritoneal dialysis (PD). Haemodialysis (HD) is only allowed for patients whose body rejects PD.

• Government will pay Adventa RM3,200/month for each patient. 1,000 patients are expected in 2015.

• Each PD machine costs RM15,000, to be amortised over a period of 10 years.

• Once successfully rolled out in Malaysia, they will target Indonesia, Thailand, Hong Kong and Saudi Arabia.

Risks

• Successful roll-out of the new and projected high-growth home renal dialysis business (s lated for 1QCY15) is dependent on a smooth transition of patients from hospitals and private treatment centres to home treatment. T rials are ongoing with further investments on patient care education and training as well as extending reach into rural regions.

Forecasts

• Unchanged.

Rating

BUY , TP: RM1. 30

Positives

• (1) First-mover advantage in home renal dialysis treatment and almost monopolistic position in commercial sterilisation and warehousing activities within Asia; (2) Relatively high barrier to entry for potential rivals due to high cost of machinery and technological know-how; and (3) Sustainable longer-term growth prospects given increasing exposure to niche healthcare segment s.

Negatives

• (1) Strong projected group revenue and earnings growth rates are highly reliant on successful implementation and execution of the new home renal dialysis operations; (2) High working capital requirements estimated for new equipment build and business expansion; and (3) The shares are tightly held currently, resulting in relatively low trading volumes.

Valuation

• Reiterate BUY with unchanged fair value of RM1. 30, based on FY10/15E P/E of 19x, which is at a 26% discount to Asian healthcare players.
• We believe the discount is justified given Adventa’s relat ively small size at the moment and the lack of share liquidity .

Source: Hong Leong Investment Bank Research - 16 Dec 2014