RHB Investment Bank Bhd (RHB IB) said Apex Healthcare Bhd’s (Apex) valuations are compelling, as it expects its capacity-driven strategy and inelastic consumer demand towards pharmaceutical products to propel earnings growth.
“Apex the prime beneficiary of potential pent-up demand for cough and flu products amid a resurgence of Covid-19 cases, rising health awareness, and the ageing society trend, it said in its Trading Idea note today (Dec 19).
On the valuation, the research house said the group involved in pharmaceutical products’ manufacturing, marketing, distribution and retail currently trades at 17x 2024 PE, -0.7SD below its historical mean.
“We project a 3-year earnings CAGR of 4% from 2022 to 2025. Stripping out Straits Apex Group’s (SAG) contributions, the 3-year CAGR would have been 16% compared to the average growth of medical products’ retail sales of 11%.”
RHB IB adopts a P/E-based valuation with 20x FY24 PE to drive a fair value (FV) of RM2.90.
“The valuation is in line with Apex’s 5-year historical mean, given its better earnings visibility, better-than-peers margins profile, and capacity-driven growth outlook,” it elaborated.
The key risks to its call include FX fluctuations, changes in the regulatory environment, loss of key principals, and higher-than-expected operating costs.
The research house said pent-up demands for cough and flu medicine are expected due to the rising Covid-19 numbers.
“Covid-19 cases reportedly increased 88% to 12,757 during the second week of December compared to 6,796 last week.
“The situation is likely to be worsen in conjunction with the year-end festivities and school holidays according to Health director-general Dr Muhammad Radzi Abu Hassan.
“Given the higher chances of infection in view of the new Covid-19 variant, coupled with the lack of public awareness in wearing face masks, the rising trend could potentially lead to pent-up consumer demand towards cough and flu medicines as seen in 2H22,” it said.
RHB IB expects further upside to be supported by an organic expansion pipeline, given that the Cheng Industrial Estate production facility in Melaka is fully utilised.
Apex recently entered into a sales & purchase agreement (SPA) with Panasonic Appliances Refrigeration Devices Malaysia for the acquisition of 20.7 acres industrial land at this estate, it said.
“The industrial complex comprises two main factory buildings and has been assessed as suitable for retrofitting to meet XepaSoul Pattinson (Malaysia)’s (Xepa) manufacturing requirements, effectively reducing necessary construction costs.”
Apex’s distribution network encompasses 15,505 customer accounts, to date.
It added the demand for dietary supplements in Malaysia is set to record a healthy 5-year CAGR growth of 4.5% from 2022 to 2027, on factors that include rising awareness of personal health.
