• Maintain HOLD (TP: RM2.41). Apex Healthcare (Apex)’s 9MFY23 top-line edged up by +5.9% YoY, driven by improved demand for pharmaceuticals, consumer healthcare products and medical devices. In tandem, the group recorded higher 9MFY23 net profit of RM377.9mn (+>100 YoY). Nonetheless after stripping out a one-off gain of RM304.4mn from nonrecurring gain on disposal recognized by SAG, Apex recorded core earnings of RM72.9mn (+11.3%). The group’s bottom-line was in-line with ours but above consensus expectations, accounting for 72.4% and 82.0% respectively. Maintain a HOLD call with a lower TP of RM2.41 (from RM2.75) pegged against lower PER of 16.6x (-0.5SD of 5-year PER) from 19.0x (mean of 5-year PER) to FY24 EPS of 14.5sen. We lowered our valuation as we anticipate (i) Apex to record a flattish EBITDA margin going ahead due to the continuous increase in operating costs resulting from higher raw material costs and global inflationary pressure, and (ii) subdued sales for flu-related medication given declining flu cases in both Malaysia and Singapore post-pandemic.

• Key highlights. Apex’s 3QFY23 revenue slightly increased by +1.4% YoY due to intensified sales and marketing efforts amid a slowdown in market demand. Meanwhile, its core net profit declined by -10.1% YoY due to a lower share of earnings from associate SAG. On a QoQ basis, bottom-line decreased further by -11.7% on the back of gloomy market demand.

• Earnings Revision. No changes to our forecast.

• Outlook. Despite the macroeconomic challenges, we believe that Apex’s penetration into other market namely the European market could lead to higher sales and eventually an improvement in the group’s margin. We opine that Apex's ongoing commitment to expanding its customer base will guarantee a demand improvement for its products within the manufacturing segment.

Source: BIMB Securities Research - 30 Nov 2023