Investment Highlights

• We reiterate HOLD on Apex Healthcare (Apex) with a higher fair value (FV) of RM2.95/share (from an earlier RM2.64/share), based on a rolled-forward FY25F target PE of 22x, at 1 standard deviation above to its 5-year average of 18x. No ESG-related adjustments based on our neutral 3- star rating.

• We lowered FY24F-26F earnings by 5%-10% due to reduced associate contribution assumptions as Apex’s 1QFY24 core net profit of RM20mil generally came in below expectations, accounting for 21%-22% of our earlier full-year forecast and street’s.

• As a comparison, 1Q accounted for 25%-27% of the full-year core net profit for FY22-FY23. No interim dividend was declared as expected.

• On a YoY basis, Apex’s 1QFY24 core earnings decreased by 21% despite a flattish revenue mainly due to the drop in Straits Apex Group’s associate contribution as Apex’s effective stake fell to 16% from 40% in 1H2023.

• The group recorded an associate loss of RM0.5mil vs. a positive contribution of RM5mil in 1QFY23, further exacerbated by financing costs and amortisation of identified intangible assets for Next Ortho Investment Holdings amounting to RM2mil.

• Sequentially, Apex’s 1QFY24 core earnings rose by 6% amid a mild revenue increase of 3% as a 3%-point rise in manufacturing margin to 28% was partly offset by a 1%- point decline in wholesale/distribution margin to 3.7%.

• Pending further clarity from an analyst briefing later today, we maintain Apex’s FY24F-FY26F revenue growth of 7.0%- 7.3% albeit with a slightly faster core earnings expansion on higher economies of scale.

• Apex plans to submit applications to relevant authorities this year for the expansion of warehouses and second liquid production facilities in a newly-acquired industrial property on a 20.7-acre land in Cheng Industrial Estate, Melaka. Nevertheless, the earnings contribution from this initiative may only materialise beyond 2025.

• The stock currently trades at a fully-valued FY25F PE of 23x, 27% premium to its 5-year average of 18x. Also, Apex offers a slight dividend yield of 1.6%.

Source: AmInvest Research - 16 May 2024