¨      Slightly below expectation. Apex Healthcare’s (Apex) 9M14 results were slightly below expectations. Its 9M14 core net profit of MYR24m (+14% YoY,) accounted for about 71% of our FY14 full-year target. Both its manufacturing & marketing and wholesale & distribution segments have performed well, contributing MYR22m (+44% YoY) and MYR348m (+19% YoY) to total sales respectively. The better results were supported by an increase in exports and higher sales in the Singapore market as well as sustained marketing efforts targeted at the local private segment.

¨      Acquired 40% stake in SA.  Apex has acquired a 40% stake in Straits Apex SB (SA) for RM2.0m, which owns 87.4% of Penang-based Straits Orthopaedics (Mfg) SB (SO). Apex’s JV company, ABio Orthopaedics SB (ABio) is currently a sub-contractor of SO, performing subcontracting works in the areas of trauma, instrumentation and spine. The development shows management’s commitment to the orthopaedics business, which is part of its earnings growth engine for the long term.

¨      Maintain NEUTRAL, TP at MYR3.75. Overall, the outlook of the pharmaceutical industry remains intact, underpinned 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. We have revised our FY14F revenue and net profit downward by 2% and 6% respectively but maintain our numbers for FY15 and FY16. Maintain NEUTRAL with our TP still at MYR3.75, pegged to an unchanged target 12x FY15F P/E. Its balance sheet remains robust, with total net cash of MYR43m as at end-Sep 2014.