Highlights

• Adventa’s subsidiary, Lucenxia Malaysia, has launched the Lucenxia INTELLIS, an Intelligent Automated Peritoneal Dialysis (APD) cycler specifically designed for patients with chronic kidney disease.

• The APD machines would be readily available for patients to be treated at home. Patients would have to undergo circa 10-12 hours of treatment, daily.

• We expect government to pay Adventa circa RM3,200/month for each patient.

• The number of patients suffering from diabetes and endstage renal disease is growing. With more than 3m cases of diabetes and 2m Malaysians having kidney diseases, we believe APD would be a better option for health maintenance (in certain circumstances) when compared to haemodialysis.

• Following the footsteps of Thailand, Hong Kong and Mexico, Malaysia is currently in the midst of adopting a Peritoneal Dialysis First Policy, where APD would be the primary treatment for renal diseases.

• We are positive on Adventa’s home dialysis business and expect contribution to kick in 2017 onwards. With the growing number of chronic disease patients and scarcity of equipment/ resources, this home dialysis business would be more convenient to kidney patients as well as a catalyst for Adventa.

Risks

• Successful roll-out of the new and projected high-growth home renal dialysis business is dependent on a smooth transition of patients from hospitals and private treatment centres to home treatment. Trials are ongoing with further investments on patient care education and training as well as extending reach into rural regions.

Forecasts

• Maintained.

Rating

HOLD , TP: RM1.02

Positives

• (1) First-mover advantage in home renal dialysis treatment and almost monopolistic position in commercial sterilisation and warehousing activities within Asia; (2) Relatively high barrier to entry for potential rivals due to high cost of machinery and technological know-how; and (3) Sustainable longer-term growth prospects given increasing exposure to niche healthcare segments.

Negatives

• (1) Strong projected group revenue and earnings growth rates are highly reliant on successful implementation and execution of the new home renal dialysis operations; (2) High working capital requirements estimated for new equipment and business expansion; and (3) The shares are tightly held currently, resulting in relatively low trading volumes.

Valuation

• Maintain HOLD with TP of RM1.02 based on CY16 P/E of 19x, which is at a 25% discount to Asian healthcare players.

Source: Hong Leong Investment Bank Research - 26 Jan 2016