KUALA LUMPUR: Apex Healthcare Bhd's near-term earnings momentum is likely to remain capped from the high base of financial year 2022 (FY22), according to Affin Hwang Capital.
This is based on Affin Hwang's expectations of demand normalisation from the high base in FY22 coupled with lower associate contributions from the recent stake divestment.
"We lower our FY23 to FY25 estimates by five per cent to seven per cent, as we factor in the aforementioned factors," the firm said in a note today.
To tap future demand, Affin Hwang said Apex Healthcare's manufacturing arm completed its expansion efforts in 2022 which involved doubling the production capacity of liquids, and a 36 per cent capacity expansion for the Oral Solid Dosage manufacturing plant.
Affin Hwang said the distribution arm's long-term growth prospects (which is primarily exposed to Malaysia currently) will be supported by the recent 40:60 joint venture (JV) with Shanghai Pharmaceutical.
The JV intends to introduce new products in Singapore and other foreign markets.
Separately, Affin Hwang said with the recent news of the government intending to review monopolies within the economy, an apparent monopoly within the pharmaceutical space is the approved products purchase list (AAPL) concession currently held by Pharmaniaga Bhd.
"We do not think Apex Healthcare would be overly interested in the government's AAPL concession (should the opportunity arises in the future) due to the low-margin nature of the business and the requirement of an extensive logistics reach throughout the nation," it added.
Affin Hwang maintained a "Hold" call on Apex Healthcare with a lower target price of RM2.40 from RM2.75 previously.
It believes the stock is fairly valued as demand for its pharmaceutical products is expected to normalise this year coupled with it not being able to meaningfully tap into the growth prospects of its associate due to the recent stake divestment.
Affin Hwang said key upside or downside risks for the stock include stronger or weaker demand for pharmaceutical products, as well as raw material price fluctuations.