Apex Healthcare’s (ApexH) 4QFY21 net profit increased by 43.8% YoY to RM20.7m. The stronger performance was mainly due to higher market demand for pharmaceuticals, consumer healthcare products and point of care diagnostics. The results were above both our and street projections at 109% of full-year numbers. The discrepancy in our forecasts was due to lower-than-expected administrative, selling and marketing expenses. We revised our forecasts for FY22-23F by 4-8% as we impute in lower administrative, selling and marketing expenses. As such, our TP is revised to RM2.40, based on an unchanged 17x FY22 EPS of 13.8sen, from RM2.25 previously. Given the recent fall in share price, our revised TP suggests a downside of only 6%. As such, we upgrade our call from Underperform to Neutral. On a side note, ApexH declared a final dividend of 3sen and a special dividend of 6sen.

• Stronger revenue. ApexH reported a 22.3% YoY increase in revenue to RM197.7m. The increase was mainly due to stronger contribution from its wholesale and distribution segment (+20.1% YoY) and its manufacturing and marketing segment (+58.4% YoY), underpinned by the increase in market demand for pharmaceuticals, consumer healthcare products and point of care diagnostics. We attribute this to improving consumer confidence, especially for products relating to cough and cold given the milder symptom delivered by Omicron variant.

• Net profit. In tandem with higher revenue, ApexH’s net profit improved by 43.8% YoY to RM20.7m. This was mainly due to higher share of profits from its 40%-owned associate company, SAG, which added 44.3% YoY to RM5.6m. The stronger performance from SAG was due to progressively clearing of backlog order as the production operations normalized where the production was interrupted by movement restriction during 3QFY21. In addition, PBT margin has improved by 1.4ppt to 12.8% mainly due to stronger sales of higher margin products.

• Outlook. Although the new Covid-19 cases in Malaysia are rising, as the majority of cases delivered only mild symptoms, we do not expect the government to reintroduction lockdown measures. Additionally, we believe consumer sentiment should gradually recover, boosting consumer spending which in turn should benefit ApexH. In the long term, we expect ApexH should benefit from the current market trend of aging population where the demand for pharmaceutical products should increase with aged population. However, the supply chain bottleneck and elevated raw materials and freight cost might tempered ApexH’s performance in the short term.

Source: PublicInvest Research - 24 Feb 2022