Apex  Healthcare  (AHB)’s  9MFY13  results  fell  below  expectations,  with  revenue/net  profit  of  MYR312.2m/MYR22.4m  accounting  for c.68%/62%  of  our  FY13  estimates.  The  lower-than-expected  results  were  due  to:  i)  lower  contribution  from  its  manufacturing  andmarketing  unit  (-7%  y-o-y),  ii)  a  MYR0.9m  start-up  loss  from  ABio  Orthopaedics  (ABio),  and  iii)  higher  operating  costs  from  its  new distribution warehouse in Singapore.  We have  revised  our FY13 forecasts  but  retain  our FY14F numbers,  as we believe that its earnings visibility  will  improve  in  FY14.  This  is  on  ABio  beginning  commercial  production  in  September  and  the  new  distribution  agencies  in Singapore starting operations by Jan 2014. We maintain our FV at MYR5.15, pegged to an unchanged target 12x P/E. Maintain NEUTRAL.

Below  expectations.  AHB’s  9MFY13  results  missed  our  expectations, with revenue  of  MYR312.2m  making  up  only  68%  of  our  full-year projection, while its  MYR22.4m  net profit  accounted  for  only  c.62% of our  FY13  target.  On a yearly basis, 9MFY13 PBT dropped 7% y-o-y to MYR30m despite its revenue inching  higher by 3% y-o-y to MYR312.m.  EBIT margin fell to 9.9% in 9MFY13 from 10.8% in 9MFY12.  The lower results were  mainly due to:  i)  lower contribution from manufacturing  and  marketing,  ii)  a MYR0.9m  start-up loss  from  of its 40%-owned joint venture (JV) ABio, and iii) higher operating cost from its new distribution warehouse in Singapore.  On a quarterly basis, results were generally softer in 3QFY13, with its MYR8.6m PBT 7% lower q-o-q, attributed to a MYR0.5m start-up loss from ABio during the quarter under review. Softer local sales, partially mitigated by stronger exports.  The manufacturing and marketing segment, which saw a 7% y-o-y contraction in sales to MYR66.3m, was affected by slow domestic demand due to intensifying competition and lower sales to the Government. Nevertheless, the impact  was partially mitigated by higher sales to key exports markets  like  Singapore and  the  Middle East. Going forward, management indicates  that  it  will  focus  more  on  various  marketing  strategies  to  increase  domestic  sales.  Revenue  contribution  from  the  wholesale  and distribution segment grew  4% y-o-y, supported by sustainable growth from its own brand pharmaceutical and consumer healthcare products.

As part of its efforts to strengthen  its sales in Singapore, AHB has purchased a new distribution warehouse cum office  there  and  the group expects  to  relocate  its  Singapore  business  unit  to  its  new  premises  by  mid-December.  Meanwhile,  renovations  at  its  Penang  plant  and validation of all production equipment for orthopaedics production were completed in 3QFY13, with  full commercial production beginning  in September.

Maintain NEUTRAL, FV at MYR5.15. We are lowering our FY13 revenue and PBT forecasts by 4% and 14% respectively, after factoring in lower local sales and higher  operating costs. Nevertheless, we are  leaving our FY14 estimates untouched  in view of AHB’s stronger earnings visibility from  FY14  onward.  This  is  on  ABio  having  started  commercial  production  in  September  and  the  new  distribution  agencies  in  Singapore beginning  operations  by Jan 2014.  We maintain our FV  of  MYR5.15, pegged  its  FY14F EPS of 43.7 sen  to  an unchanged target  P/E  of 12x.  The group’s financial position remains solid despite paying off for its new distribution facilities in Singapore. It has a total net cash of MYR32.4m) as at end-September.

Source: RHB