Apex Healthcare’s FY17 net profit of RM44.5m (+27% yoy) came in above our expectation (116% of our full-year forecast) due to the better-thanexpected performance of its associate company, Straits Apex. The EU GMP certification and the expected completion of SPP NOVO in 3Q18 are expected to provide exciting future growth opportunities. We maintain our BUY rating with a slightly higher TP of RM6.40 based on 16x 2018E EPS.

2017 Net Profit Beat Our Expectation

2017 revenue grew by 6.7% yoy to RM620.3m on the back of improved pharmaceutical sales to the government sector and contract manufacturing services. Its gross profit increased by 5.9% yoy to RM135.8m in tandem with revenue growth, while opex was within budget. As a result, 2017’s operating profit of RM50.7m (OPM of 8%) was in line with our estimate. However, its share of results from an associate in 4Q17 of RM2.9m (vs. loss of RM2.9m in 4Q16) was a pleasant surprise, a result of higher sales and greater proportion of high-margin products in Straits Apex Sdn Bhd, and thus pushing 2017 net profit to RM44.5m (+27% yoy). This was 16% above our forecast of RM38.5m. Also, a final DPS of 6.50 sen was declared, bringing FY17 DPS to 12 sen (vs. 11.50 sen in FY16).

Segmental Breakdown

In 2017, the sales of its manufacturing and marketing division and wholesale and distribution division increased by 17% yoy and 6% yoy respectively. EBIT margins for these 2 divisions were relatively stable compared to FY16. Nevertheless, Apex’s FY17 PBT margin improved by 1ppt to 9% due to the improved share of results from Straits Apex.

Maintain BUY With Higher TP of RM6.40

We introduce 2020E EPS and increase 2018-19E earnings by 5-6% to factor in higher profits from associates of RM5m (vs. previous assumption of RM1.5-2m). We maintain our BUY rating with slightly higher TP of RM6.40 (from RM6.10) based on an unchanged 16x 2018E EPS. We continue to like Apex for its solid execution and favourable outlook driven by its new SPP NOVO plant, which is expected to be completed in 3Q18. Key investment risks include delay of the SPP NOVO completion, product recall risks, competition risks, and low liquidity risks.

Source: Affin Hwang Research - 23 Feb 2018