Trading Buy with 60% upside – Fair Value of RM1.30based onFY21E PER of 25x. We like OPTIMAX for its: (i) robust growth prospects anchored by its new Seremban ACC, (ii) strong earnings recovery in 3QFY20, (iii) ability to leverage rising surgery demand from prevalence of Myopia and an aging population, as well as (iv) current attractive valuation at FY21E PER of 15.9x (c.53% discount to KLHEAL Index).

New Seremban ACC to boost revenue. Optimax is in the midst of expanding an ambulatory care centre (ACC) in Seremban. Management plans to begin operations in 4QFY20 and recruit three additional eye surgeons, bringing the total number of eye surgeons to 21-22 by next year (vs. 14 in FY19). The group generated RM3.6/3.7/4.5m revenue per doctor in FY17/18/19 (see Exhibit 1). Assuming the same ratio (RM4.5m/doctor), we forecast revenue to skyrocket to RM93.9m in FY21 from RM62.6 in FY19, implying a 2-year CAGR of 22% (conservative compared to CAGR of 32% for FY17-FY19).

Incoming strong 3QFY20 as appointments were postponed from 2QFY20 to 3QFY20. During the MCO, Optimax was only taking emergency cases while advising other clients to postpone surgery/procedure appointments (~50%) to 3QFY20. To give some context, the group only performed 288/31/198 surgeries in Mar/Apr/May vs. average of 678/month in FY19, and the number has already rebounded to 874/month in June. Therefore, we expect 3QFY20 to be an extremely busy period for Optimax, with number of surgeries performed potentially surpassing 900/month, which is 2.4 times more surgeries/procedures than 2QFY20 average.

Rising surgery demand every year. The number of laser correction procedures and cataract surgeries (for blurred vision) Optimax performs each year has been growing (see Exhibit 2), due to: (i) the prevalence of Myopia (short-sightedness), and (ii) an aging population. Based on an article by MyHealth (under Ministry of Health), 85-90% of young adults in Asian countries like Singapore and Taiwan were affected by Myopia compared to only 42% of Chinese and 15% of Malay students in Malaysia. With the growing usage of smartphones nowadays, we believe the prevalence of Myopia will continue to rise, thus fuelling the demand for refractive surgeries. Also, with aging population in Malaysia (older demographics are more prone to cataract), the demand for cataract surgeries is likely to remain high.

Still cheap. Competitor in Malaysia, Topvision, is trading at FY19 PER of 123x, while ISEC Healthcare in Singapore is at 22x, C-MER Eye Care in Hong Kong at 191x and AIER Eye Hospital at 160x. As comparison, Optimax is currently trading at FY19 PE of 28x. We forecast Optimax’s net profit to jump to RM13.8m in FY21, which implies that the stock is only trading at FY21E PER of 15.9x, representing c.53% discount to KLHEAL Index.

TRADING BUY with 60% upside – Fair Value of RM1.30, pegged to 25x FY21E PER – which is at c.26% discount to KLHEAL Index. We like OPTIMAX for its: (i) robust 2-year CAGR revenue growth anchored by its new Seremban ACC, (ii) strong earnings recovery in 3QFY20, (iii) ability to leverage rising surgery demand from prevalence of Myopia and an aging population, as well as (iv) attractive valuation at FY21E PER of 15.9x (c.53% discount to KLHEAL Index).

Source: Kenanga Research - 3 Sept 2020