This article first appeared in The Edge Financial Daily on May 28, 2018
Apex Healthcare Bhd
(May 25, RM6)
Maintain outperform with a higher target price (TP) of RM6.77: Apex Healthcare Bhd reported a healthy net profit for the first quarter of financial year 2018 (1QFY18) ended March 31, 2018 of RM13.2 million (+30.6% year-on-year [y-o-y]), which met 29% of our full-year estimate. The higher earnings were attributed to a stronger performance from manufacturing of its own products, as well as the marketing and distribution of pharmaceutical and consumer healthcare products. We adjust our earnings estimates higher by 6% to 9% for FY18-FY20, and maintain our “outperform” call with a higher TP of RM6.77 premised on 15 times multiple to rolled over FY19 earnings per share.
We continue to like Apex Healthcare for: i) an additional capacity from its new Oral Solid Dosage (SPP NOVO) manufacturing facility to be ready in FY18; ii) a strong balance sheet with a net cash position of 73.3 sen per share; and iii) its synergistic relationship with a number of multinational drug companies and a wide distribution network for pharmaceutical, over-the-counter and consumer products in Malaysia.
Apex Healthcare’s 1QFY18 revenue was stronger at RM168.4 million (+8.9% y-o-y), attributed to increased contributions from group-branded pharmaceutical sales to the government sector in Malaysia and Singapore, exports and contract manufacturing services. Segment-wise, external 1QFY18 revenue for the manufacturing and marketing division rose by 110.1% y-o-y, while wholesale and distribution increased by 5.2% y-o-y. Improvement was also noted in the share of results from its associate company Straits Apex, which increased 61.1% y-o-y to RM1.6 million (1QFY17: RM1 million) as initiatives taken to broaden its customer base gained traction. Going forward, we are conservatively looking at an 8%-11% growth in FY18-FY20, on the back of trading strength and emphasis on research and development initiatives resulting in quality pharmaceutical product formulations. We also look forward to the new SPP NOVO coming on board in 4QFY18, which should provide Apex Healthcare with ample capacity to drive production growth in the years to come.
Apex Healthcare’s 1QFY18 operating, pre-tax and net margins were better at 8.8%, 9.8% and 7.8% respectively (compared with 7.7%, 8.3% and 6.5% in 1QFY17), in line with positive performances of its subsidiaries and associates. As Apex Healthcare continues to concentrate efforts on group-branded pharmaceuticals, we expect the increased margin levels to be sustainable in coming quarters. — PublicInvest Research, May 25