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Friday, May 25, 2018

Apex Healthcare Berhad - Off To A Good Start

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Apex Healthcare Berhad (ApexH) reported a healthy 1QFY18 net profit of RM13.2m (+30.6% YoY), which met 29% of our full-year estimates. The higher earnings were attributed to stronger performance from manufacturing of own products, as well as the marketing and distribution of pharmaceuticals and consumer healthcare products. We adjust our earnings estimates higher by 6% to 9% for FY18F-20F, and maintain our Outperform call with a higher target price of RM6.77 premised on 15x multiple to a rolled-over FY19 EPS. We continue to like ApexH for i) additional capacity from its new Oral Solid Dosage (SPP NOVO) manufacturing facility to be ready in 2018, ii) strong balance sheet with net cash position of 73.3sen/share, and iii) synergistic relationship with a number of multinational drug companies and wide distribution network for pharmaceuticals, over-the-counter and consumer products in Malaysia.
  • 1QFY18 revenue was stronger at RM168.4m (+8.9% YoY), 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 Manufacturing and Marketing division rose by 110.1% YoY while Wholesale and Distribution increased by 5.2% YoY. Improvement was also noted in share of results from its associate company Straits Apex, which increased 61.1% YoY to RM1.6m (1QFY17: RM1.0m) as initiatives taken to broaden its customer base gain traction. Going forward, we are conservatively looking at an 8-11% growth in FY18F-20F, on the back of trading strength and emphasis on R&D initiatives resulting in quality pharmaceutical product formulations. We also look forward to the new SPP NOVO coming on board in 4QFY18, which should provide ApexH with ample capacity to drive production growth in the years to come.
  • Margin improvements. Operating, pretax and net margins were better at 8.8%, 9.8% and 7.8% respectively (compared to 7.7%, 8.3% and 6.5% in 1QFY17), in line with positive performance from its subsidiaries and associates. As ApexH continues to concentrate efforts on Group-branded pharmaceuticals, we expect the increased margin levels to be sustainable in the coming quarters.
Source: PublicInvest Research - 25 May 2018

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