Investment Highlights

• We reiterate HOLD on Apex Healthcare (Apex) with an unchanged fair value (FV) of RM2.64/share, based on FY24F target PE of 20x, at parity to its 5-year average. No ESG-related adjustments based on our neutral 3-star rating.

• We maintain FY23F-25F earnings after an analyst result briefing yesterday, as management guidance remains in line with our assumptions.

• Apex clarified that pharmaceutical products were the primary driver of the group’s steady QoQ revenue growth of 9% in 3QFY23. In 9MFY23, demand for consumer healthcare products remained lacklustre.

• Going into 4QFY23, Apex expects a stronger QoQ demand growth for the consumer healthcare products, mainly boosted by aggressive sales and marketing initiatives since 3QFY23, coupled with the recruitment of new distribution agency lines in 4QFY23.

• However, demand for pharmaceutical products (especially flurelated medications) could experience moderation QoQ, in tandem with declining Malaysian flu cases in 4QFY23 (Exhibit 1).

• Hence, we adhere to our view that revenue and earnings could be lower QoQ given the improvement in consumer healthcare products may not be able to offset moderating pharmaceutical sales, which is the group’s largest topline contributor.

• Apex guided that the prices of active pharmaceutical ingredients (API) are stabilising QoQ. Typically, API accounts for 40% of medicinal cost.

• For 16%-owned Straits Apex involved in orthopedics business, the group guided that FY23F target revenue should be maintained at the higher ranges of +US$60mil as guided previously (vs US$60mil in FY22). Going into FY24F, revenue should grow 10% YoY with continued demand from endcustomers.

• With the disposal proceeds from the divestment of Straits Apex in May 2023, the group updated that it needs more time to secure an investment or acquisition among prospects in a number of countries primarily involved in pharmaceuticals, medical devices or consumer healthcare. The timeline for closure has been extended from previous guidance by 3Q/4QFY23.

• The stock currently trades at a fairly valued FY24F PE of 18x, at 10% discount to its 5-year average given a likely softer 4QFY23 earnings delivery. Also, Apex offers a slight dividend yield of 2.3%.

Source: AmInvest Research - 1 Dec 2023