• Downgrade to SELL (TP: RM2.41). Apex Healthcare (Apex)’s FY23 top-line grew by +6.7% YoY, as a result of successful launches of new products under the group's brands and a heightened prevalence of respiratory illnesses within the community. In tandem, the group recorded higher FY23 net profit of RM398.0mn (+>100 YoY). Nonetheless after stripping out a few exceptional items including a one-off gain of RM321.7mn from nonrecurring gain on disposal recognized by SAG, Apex recorded core earnings of RM95.7mn (-3.7% YoY). The group’s bottom-line was in-line with ours and consensus expectations, accounting for 95.1% and 99.5% respectively. We are downgrading the stock from HOLD to SELL with an unchanged TP of RM2.41 pegged against a PER of 16.6x, representing -0.5 SD of the 5- year PER to FY24 EPS of 14.5sen. This downgrade is prompted by the reduced potential for reward relative to risk resulting from the recent uptick in the share price. Note that Apex's share price has risen by 33.2% YoY and 20.4% YTD.

• Key highlights. Apex’s 4QFY23 revenue increased by +8.8% YoY due to better sales of pharmaceuticals, consumer healthcare products and medical devices in Malaysia and Singapore. Meanwhile, its core net profit declined by -34.6% YoY due to a lower share of earnings from associate SAG. On a QoQ basis, bottom-line decreased by -7.1%.

• Earnings Revision. No changes to our forecast.

• Outlook. Our outlook for Apex is varied. Looking ahead, we anticipate Apex to maintain a flattish EBITDA margin, primarily due to ongoing increases in operating expenses driven by higher raw material costs and global inflationary pressures. Additionally, subdued sales of flu-related medication following a decline in flu cases in both Malaysia and Singapore post-pandemic contribute to this projection. Furthermore, we do not foresee any significant earnings growth in the near term due to weakened consumer sentiment. Nevertheless, despite these challenges, we maintain an optimistic view regarding Apex's expansion into other markets, which could potentially result in increased sales and ultimately improve the group's margin.

Source: BIMB Securities Research - 22 Feb 2024