Apex Healthcare’s (ApexH) 1QFY23 net profit increased by 54% YoY to  RM24.3m. The stronger performance was mainly driven by higher market  demand for pharmaceutical products, especially for respiratory illness. After  stripping off the non-operating items, ApexH’s 1QFY23 core net profit  increased 60% YoY to RM25.3m. The results were within both our and street’s  projections at 27% and 26% of full year forecast respectively. ApexH has  obtained approval for its one-for-two bonus issue with the entitlement date  fixed on 9 June 2023. The group’s 40% associate Straits Apex (SAG) has also  entered into an agreement to divest its entire stake in Straits Apex SB (SA) to  Quadria Capital (expected to take place in 2QFY23). Hence, we revise down  our FY23-25F earnings forecasts by 12-17%, accounting for the reduction of  ApexH’s effective stake on SAG from 40% to 16%. All told, we maintain our  Neutral call on ApexH, with a revised TP of RM3.81, based on a 20x 1-year  forward PER, rolling forward our valuation to FY24F EPS.

• Stronger revenue. ApexH’s revenue stood at RM245.8m (+14% YoY) in  1QFY23. The increase was mainly due to stronger contributions from its  manufacturing and marketing segment (+36% YoY) as well as its  wholesale and distribution segment (+12% YoY), underpinned by the  increase in market demand for pharmaceutical products, consumer  healthcare products and medical devices. This was mainly attributed to  the prevalence of COVID-19 infection and the continued presence of  acute respiratory illness in 2HFY22.

• Higher net profit. In tandem with higher revenue, ApexH’s 1QFY23 net  profit jumped by 54% YoY to RM24.3m. Stripping off the non-operating  items, core net profit was at RM25.3m in 1QFY23 (+60% YoY). The  stronger net profit was backed by a higher share of profits from Straits  Apex Group (SAG) at RM4.6m in the current quarter from RM0.9m in  1QFY22. In addition, PBT margin dropped by 1.2ppt YoY to 12%, mainly  due to the inflationary pressure.

• Outlook. We believe ApexH will benefit from the favourable  demographics and the increase in ageing population over the long run.  The group should continue to generate higher sales and grow its market  share of group brand products through R&D intensification in key  therapeutic categories to broaden its new product pipeline. However, we  remain cautious on cost pressure due to rising imported raw material  prices due to the supply chain disruption and inflationary pressure in the  near term.

Source: PublicInvest Research - 25 May 2023