Maintain BUY with unchanged forecasts, TP

Optimax’s 1H22 core net profit of MYR7.2m was largely within expectations, making up 54% of both our and consensus full-year estimates. We expect slightly lower earnings in 2H22 to factor for demand normalization and weakening consumer sentiment. Our earnings estimates are maintained and we reiterate our BUY rating, with an unchanged MYR0.74 DCF-TP (cost of equity: 10.5%, perpetual growth: 3%).

Operating leverage boosts margins

Optimax’s 2Q22 core net profit grew by +77.2% QoQ and +126.0% YoY, to MYR4.6m, underpinned by revenue growth of +18.9% QoQ and +53.4% YoY. Given relatively slower expansion in its cost lines, Optimax was able to generate QoQ improvements in GP/EBIT/NP margins, which increased by 5.2/6.2/5.5ppts, respectively. This operating leverage is underpinned by largely fixed-cost items relating to staff and depreciation expenses.

Pent-up demand driving QoQ momentum

While the robust YoY revenue and earnings growth recovery is to be expected given the operational constraints in 2021 due to COVID restrictions, the stronger 2Q22 QoQ revenue performance is primarily attributed to higher surgery volume. With Malaysia entering the endemic phase on 1 Apr 2022 and further relaxation of COVID-19 SOPs from 1 May 2022, the revenue expansion was supported by pent-up demand and replacements of postponed/cancelled appointments in the previous year.

2H22 expected to see deceleration

Looking forward to 2H22, we adopt a cautious stance, anticipating lower second half earnings due to i) demand normalization, with pent-up demand having been largely satisfied over the previous three quarters, and ii) weakening consumer sentiment / affordability due to inflationary pressures and higher interest rates. Additionally, with the opening of the Bahau ambulatory care centre (“ACC”) and several satellite clinics in 2H22, we anticipate gestation-related margin compression to feature.

Source: Maybank Research - 21 Aug 2022