• Maintain HOLD (TP: RM2.42). Apex Healthcare (Apex)’s 9MFY24 revenue increased by 4.0% YoY, driven by higher sales, strong performance from new pharmaceutical and consumer healthcare agencies and the continued launch of new group-branded products. However, bottom-line performance declined sharply by 83.3% YoY to RM63.1mn in 9MFY24. Excluding exceptional items, including a one-off gain of RM304.4mn in 9MFY23 from the divestment, core net profit dropped by a smaller 8.4% YoY. The results were below our expectations but within consensus, accounting for 64% and 73% of respective estimates. The deviation was mainly due to weaker-than-expected contributions from associates. Note that Apex’s share of results from Straits Apex Group Sdn Bhd (SAG) recorded a loss of RM3.2mn in 9MFY24, compared to a gain of RM319.1mn last year, which included a one-off gain from SAG’s divestment. We maintain our HOLD recommendation and lower TP to RM2.42 (from RM2.51), in line with earnings adjustments, based on a PER of 16.6x, representing -0.5 SD of the 5-year PER to FY25 EPS of 14.5sen.

• Key Highlights. On quarterly basis, Apex’s 3QFY24 revenue flattish +0.9% YoY. Although the group’s consumer healthcare portfolio was further strengthened, revenue growth was moderated by lower contract manufacturing orders and reduced supply to Malaysian government tenders. Core net profit declined by 16.9% YoY to RM19.8mn as SAG showed a loss of RM3.7mn for the quarter, primarily due to forex losses and weaker financial performance resulting from lower revenue.

• Earnings Revision. We have reduced our FY24 earnings forecast by 13.1% due to changes in associate contribution assumptions, while modestly lowering our FY25 and FY26 forecasts by 3.8% and 3.3%, respectively, as the group expects a potential improvement in SAG’s contribution in 2025 supported by a recovery in customer orders.

• Outlook. Despite the expected resilient demand for pharmaceuticals, consumer healthcare products and the ongoing launches of new groupbranded products, we do not anticipate significant growth in the group’s earnings in the near term due to the weak contribution from its associate.

Source: BIMB Securities Research - 28 Nov 2024