• MYR0.40 FV, based on 32x FY25F (May) P/E. Alpha IVF Group intends to raise MYR116.6m from its IPO, primarily to fund its expansion plan, upgrading exercise and working capital needs. It was founded by an experienced specialist in obstetrics & gynaecology (O&G), Dato’ Dr Colin Lee Soon Soo (DDLSS), who has steered the company to reach multiple heights. We expect Alpha’s strategic expansion plan to counter the declining birth rate in ASEAN, while the pick-up in medical tourism should drive its FY23-26E earnings CAGR of 20%.

• Growing demand for assisted reproductive services (ARS). The rising prevalence of infertility, coupled with a declining birth rate, is driving the growth of ARS. According to Department Statistics of Malaysia (DOSM), Malaysia’s 2022 fertility rate was at 1.6 children per woman – the lowest in 50 years. Meanwhile, Singapore’s fertility rate fell to 1.05 in 2022 from 1.12 a year ago. With advanced technological breakthroughs in ARS, Alpha has been able to ride on this mega-trend to provide comprehensive assisted reproductive treatment (ART), which leads to higher success rates in conception, better family planning (through cryopreservation of eggs and sperm) and enabling couples to detect embryo chromosomal abnormalities (under pre-implantation genetic testing).

• High barriers of entry. The ARS industry has high barriers of entry, predicated by a niche talent pool as well as stringent regulatory requirements. Further to that, all ARS centres in Singapore must conform to the standards of ARS established by the Reproductive Technology Accreditation Committee (RTAC) in Australia. Although not mandatory in Malaysia, Alpha received its RTAC accreditation in 2020 – as at 2022, there are 11 RTAC-certified units in Malaysia. Being RTAC-certified means an ARS provider has achieved the highest international benchmark that offers quality assurance to patients.

• Medical tourism. Malaysia’s appeal as one of the world’s top healthcare destinations lies in its strictly regulated world-class quality healthcare, accessibility, competitive pricing, ease of communication and hospitality. On top of that, the high success rates of in vitro fertilisation (IVF) treatment of 50- 83% (for individuals below 40 years old) and 50-68% (for individuals above 40 years old) has helped to boost Malaysia as a choice destination for ARS. Foreign patients accounted for 57% of Alpha’s Malaysia division revenue as at 5M23, ie May.

• We project a 3-year FY23-26E earnings CAGR of 20% and ascribe a 32x P/E to its FY25F earnings to derive our FV of MYR0.40. The valuation is at a 14% premium over the average of the local listed healthcare service providers (which offer ARS under their hospital networks as well) which are trading at a 2-year forward P/E mean of 28x.

• Key downside risks. These include: A shortage of medical specialists in the field, outbreak and spread of diseases leading to a drop in foreign patients visit numbers, and higher-than-expected operating costs.

Source: RHB Securities Research - 6 Mar 2024