Apex Healthcare - 1HFY12 Earnings up 28.2% Y-o-y

Apex Healthcare Bhd’s (AHB) 1HFY12 results were largely in line with our expectation. Its revenue of RM204.8m made up about 50.5% of our full-year target. Management has declared an interim dividend of 6.0 sen. We are maintaining our FV of RM3.84, pegged at its 10-year average PER of 9.5x, which suggests a potential upside of 23% from the current share price.

Within expectation. 2QFY12 revenue came in at RM100.7m (+13.1% y-o-y, -3.3% q-o-q) while earnings stood at RM8.4m (+28.2% y-o-y, +32.3% q-o-q). AHB’s 1HFY12 revenue rose to RM204.8m (+12.7% y-o-y) but earnings dropped slightly by 4.6% to RM14.7m. This is due to a RM2.5m tax charge after the completion of the disposal of Xiamen Maidiken Science and Technology Co Ltd, China in 1QFY12. The manufacturing & marketing as well as the wholesale & distribution segments are doing well. In the 1HFY12, its manufacturing arm, Xepa, enjoyed a 14% y-o-y revenue growth while Apex Pharma, its wholesale & distribution arm, saw its revenue rising by 20% y-o-y.

New products boost sales. During 2QFY12, AHB’s sales were boosted by the launch of a few new products. One of them is Hydra 24, a non-oily cream preparation for the treatment of cracked heels, which has received encouraging market response. It is worth noting that Singapore’s 1HFY12 revenue grew 17% y-o-y to hit RM41.7m, a new high backed by strong contributions from the wholesale and consumer divisions. Singapore is the second largest market after Malaysia, accounting for about 20% of its total sales in 1HFY12.

Interim dividend of 6 sen. AHB is proposing an interim dividend of 6 sen less 25% tax, higher than last year’s interim dividend of 5.5 sen less 25% tax. This is in line with our projection of a total dividend 18 sen (We are expecting a final dividend of 6 sen and a special dividend of 6 sen), which translated into a decent dividend yield of 5.8%.

Maintain BUY with RM3.84 FV. We continue to like AHB for its: i) prudent management, ii) good track record in dividend payout, iii) solid balance sheet, iv) potential business opportunities from off-patent drugs sales, and v) higher margins from its own-brand products. We are leaving our forecast unchanged and maintaining our BUY call at a FV of RM3.84 by pegging 10-year average PER of 9.5x on its FY13 earnings.

Source: OSK