Results

• In line – Adventa achieved revenue of RM34.8m for FY14, which translated into core earnings of RM4.3m.

• Core net profit came in broadly within our expectations, accounting for 96.3% of our full year estimat e.

Deviations

• None.

Dividends

• None.

Highlights

• 4QFY14 turnover improved by a whopping 106% yoy and 16% qoq. On the contrary, its earnings registered doubledigit declines (-10.2 yoy and -14.3 qoq) due to higher expenditure arising from the Home Dialysis business in which trials are still ongoing (expect to be completed by 1QCY15).

• Healthcare products segment: Revenue increased more than 100% yoy to RM7.9m (3QFY13: RM2.1m). The huge improvement was achieved thanks to higher s upplies contract as well as introduction of new products.

• Sterilisation provider segment: Sales grew by 26% yoy to RM3.9m vs RM3.0m in 3QFY13, contributed by the increased in efficiency and capacity.

• For its FY14, revenue rose 27% yoy, driven mainly by the better performance from both segments. On the earnings level, after exc luding a one-off disposal gain of RM196.4m in 1QFY13, earnings showed a decline, reflecting higher operating expenditure from Home Dialysis business and marketing expenditure to promote the introduction of new products.

Risks

• Successful roll-out of the new and projected high-growth home renal dialysis business (slated for 1QFY15) 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 educat ion and training as well as extending reach into rural regions.

Forecasts

• We cut our forecasts by 2-8% to reflect higher expenses and less favourable market outlook.

Rating

BUY , TP: RM1. 20

Positives

• (1) First-mover advantage in home renal dialysistreatment 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 andearnings 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 and business expansion; and (3) The shares are tightly held currently, resulting in relatively low trading volumes.

Valuation

• Reiterate BUY with TP reduced to RM1.20 from 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 relatively small size at the moment and the lack of share liquidity .

Source: Hong Leong Investment Bank Research - 24 Dec 2014