Apex Healthcare (AHB) has proposed a 1-for-4 bonus issue. Upon the completion of the proposed exercise, its enlarged issued and paid-up share  capital  would  increase  to  117.1m  shares  from  93.7m  shares.  In  addition,  AHB  has  also  proposed  to  increase  its  authorised  share capital  to  MYR200m  (comprising  200m  shares)  from  MYR100m.  The  proposed  corporate  exercise  would  not  have  an  impact  on  its fundamentals  and  earnings  outlook.  We  keep  our  forecasts  on  AHB  with  an  unchanged  FV  of  MYR4.42  (ex-bonus  issue  FV:  MYR3.54), pegged to an unchanged target FY14F P/E of 12x. Maintain NEUTRAL recommendation due to its unattractive FY14 P/E. 
 
1-for-4 bonus issue. Last Friday, AHB proposed the issuance of 23.4m bonus shares on the basis of one bonus share for every four existing AHB shares. It completed its first 1-for-2 bonus issue exercise prior to its transfer from the Second Board to the Main Board in 2003. Subsequently, AHB  proposed  a  1-for-4  bonus  issue  in  2010.  The  third  proposed  bonus  issue,  of  which  the  entitlement  date  will  be  determined  at  another time,  is  not  entitled  to  the  recommended  final  single-tier  dividend  of  6  sen  per  share  for  FY13  that  will  be  paid  on  5  June  2014.  Upon  the completion  of  the  proposed  bonus  issue,  its  enlarged  issue  and  paid-up  share  capital  would  increase  to  117.1m  from  93.7m  shares.    In addition,  in  order  to  facilitate  the  issuance  of  new  bonus  shares,  AHB  also  proposed  to  increase  its  authorised  share  capital  to  MYR200m, comprising 200m shares, from MYR100m. 
 
Solid balance sheet. The corporate exercise is backed by its strong balance sheet. It has total retained earnings of MYR137.9m as at end-Dec 2013, which would subsequently decrease to MYR108.7m upon the completion of the bonus issue. Furthermore, the company has total cash and cash equivalents of MYR32.8m as well as no borrowings as at end-Dec 2013.  
 
Maintain NEUTRAL, FV at MYR4.42. Going forward, AHB’s prospects are underpinned by organic growth from its existing business as we are seeing higher contributions from its own-brand products and continuous efforts from its sales and marketing team to explore new markets. In 4Q13, the company managed to bring its products to Taiwan, a new export market for AHB. The pharmaceutical industry outlook continues to be positive, supported by: i) continuous efforts to reduce healthcare costs with the increasing use of generic drugs, ii) rising demand for quality medicines  and  consumer  healthcare  products,  along  with  iii)  higher  standards  of  living.  Moreover,  its  40%-owned  subsidiary,  ABio Orthopaedics SB kicked off operations in 4Q13. We should see positive contributions from this segment from 2014 onwards. Due to the stock’s current unattractive FY14P/E, we maintain our NEUTRAL call on AHB with an unchanged FV of MYR4.42 (ex-bonus issue FV: MYR3.54), pegged to an unchanged target 12x FY14F P/E.

Source: RHB