FY21 PATAMI ended above expectations on slightly better-than expected cost management. The addition of the Caring Group was timely, mitigating the fall in CVS revenue. Nevertheless, challenges remained in the CVS space in the form of new players, and in the Pharmacy segment when the pandemic slowly recedes. TP is unchanged at RM1.60 but given the weakness in its share recently, we upgrade it to OUTPERFORM.

Above expectation. FY21 of PATAMI of RM44m came in above our/consensus estimates at 112%/140% respectively. The wide variance is alluded to better cost management which saw EBITDA margin ending above 12% vs. our initial estimates of ~10%. As in FY20, no dividends were declared.

YoY, revenue improved 11% to RM2.81b, underpinned by its inorganic growth into the pharmaceutical segment. The CVS segmental revenue saw a 12% decline to RM1.81b given the various restrictions in 2021 vs. the pharmaceutical segment which revenue jumped >100% to RM998.4m due to various equity acquisitions of pharma companies. GP margin was fairly stable but EBITDA margin improved on account of higher revenue and lower opex. PAT surged higher (+66%) to RM59m coming from a lower ETR (37%).

QoQ, revenue improved 17% to RM795.1m, underpinned by better contribution from the CVS segment (+22% to RM520.2m) as economic activities restarted. The Pharmacy segmental revenue saw a 67% surge to RM274.8m in tandem with the continued consumer focus on personal well-being and healthcare as the pandemic lingered. Group GP margin saw 2ppt improvement as sales increased across all product categories.

No change in our view of sequential improvements as business activities gradually restart. However, we believe the group’s CVS business is likely to remain challenging. This is premised on: (i) the intensifying competition within the CVS space following the entrance of new players which are stocked with ample fresh food offerings, as well as (ii) shorter operating hours compared to 24 hours previously. Nonetheless, the foresaid demerits are expected to be cushioned by solid contribution from its Pharmacy segment, as demand for pharmaceutical products is anticipated to remain robust in 2022 as the pandemic lingers.

Post results, FY22E earnings are tweaked slightly (-3%) to RM75m and we introduce our FY23E earnings where we assumed gradual increase in opex on account of higher promotional & marketing costs as the Group fends off competition.

OUTPERFORM. TP of RM1.60 remained pegged to an unchanged FY22E PER of 24x PER, at 0.5SD below its 5-year mean to account for the challenges in its CVS operations and the Pharmacy segment when the pandemic recedes. Upgrade to OUTPERFORM as value emerging following the weakness in its share price recently.

Key risks to our call include: lower–than-expected sales from its Pharma segment, and higher-than-expected operating expenses.

Source: Kenanga Research - 25 Feb 2022