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Apex Healthcare to grow manufacturing and contract manufacturing segments

Apex Healthcare to grow manufacturing and contract manufacturing segments

29 Jun 2021

In anticipation of a stronger second half of 2021 as a result of the vaccination rollout, Apex Healthcare Bhd has its eye on growing its manufacturing and contract manufacturing segment.

The company will also be increasing research and development expenditure for creating speciality products that are globally relevant and competitive. Future expenditure will not only be targeted at traditional areas such as plant and machinery, but also the acquisition of intellectual property such as product formulations and patents, Apex Healthcare chairman and CEO Dr Kee Kirk Chin tells The Edge.

The regional pharmaceutical group has three business segments — manufacturing and marketing of pharmaceutical products as well as wholesale and distribution (W&D) of pharmaceutical and healthcare products, which collectively contribute over 90% to the group’s profit; and the corporate division comprising investments, property, e-commerce and others.

“Covid-19 has affected demand for the products of the group, especially with the low number of patients at general practitioner clinics and private hospitals in the second half of 2020. While the group initiated cost leaning exercises to match expenses with lower revenue, it actually increased expenditure in research and development (12.1% over the last year) to deepen the pipeline of new products that will come onstream in the future. Besides the main therapeutic areas (for the pharmaceutical and consumer healthcare business), the group is developing products in new therapeutic classes and also broadening the portfolio of over-the-counter offerings to the market,” he says.

Some of these future launches under the group brands that Apex Healthcare manufactures include pharmaceutical products with market potential such as solid and liquid dosage forms, dermatological preparations such as creams and ointments, and sterile eye drops. These dosage forms support its offerings predominantly in the respiratory, dermatological, cardiovascular and gastrointestinal therapeutic areas, which were the company’s top selling products in 2020.

“We are also constantly looking at new therapeutic categories that fit our capabilities. As for W&D, the key agency brands are involved in nutritional supplements, biologics and oncology, supplemented by products from agency brands and general brands that form the backbone,” Kee explains.

In FY2020 ended Dec 31, government-related sales amounting to RM75 million mainly in Malaysia and Singapore made up 10.7% of Apex Healthcare’s revenue. The company does not expect governments to cut back significantly on medicine purchases.

In response to growing volumes, Apex Healthcare expanded its cold chain capabilities in both Malaysia and Singapore in 4Q2020. While the group has cold chain pharma distribution capabilities of 2°C to 8°C for 56 types of vaccines in both countries, it currently does not distribute Covid-19 vaccines as the latter remains under government-funded programmes, which are organised nationally.

“There might be distribution opportunities for us if and when Covid-19 vaccines secure regulatory approval for sale to the private sector in Malaysia and Singapore,” Kee says.

Meanwhile, the group is rolling out its business-to-business platform to complement its existing business-to-consumer e-commerce platform in Malaysia. Both platforms are also available in Singapore.

“[We] place emphasis on digital initiatives and building stronger e-commerce capabilities, and investments will be stepped up towards this direction,” Kee adds.

For 1QFY2021, Apex Healthcare posted a net profit of RM11.9 million, 17.36% lower than the RM14.4 million in the same period last year. Revenue came in at RM179.5 million, 7.14% lower than RM193.3 million previously.

When the coronavirus broke out last year, Apex Healthcare raced to meet acute market shortages of pandemic-related products (PRP) such as medical face masks, thermometers, vitamin C and hand sanitisers even as demand for its regular products, such as cough and cold pharmaceutical products, fell in the second half of 2020 (2H2020) due to social distancing measures.

Net profit for 2QFY2020 dipped slightly to RM13 million from RM13.2 million a year ago. While revenue grew 9.7% to RM174.4 million from RM159.3 million, driven by the surge in sales of PRP, the same volume done in 2020 for PRP is not expected to recur in 2021 as the product shortage was a one-off event.

Kee says 1QFY2021 saw the continuation of the cautious recovery in consumer confidence and activity. This was reflected in improved sales for the group, especially to private sector clinics and hospitals.

That said, the pace and sustainability of the recovery remains fragile, aggravated by new coronavirus variants and the Full Movement Control Order from June 1 to 28.

Meanwhile, Kee expects demand for orthopaedic devices to continue to grow at a steady compound annual growth rate of 3.8%, driven primarily by an ageing population.

Apex Healthcare’s 40% associate Straits Apex Sdn Bhd (SA) is a manufacturer of orthopaedic devices for the global market.

For the past three years, SA contributed slightly more than 10% of the group’s profit before tax — 11.3% in 2018, 11% in 2019 and 12.4% in 2020.

“Most segments of the market are mature and established. In order to do better, we have to add new production capabilities [for the orthopaedic segment] to widen our product offering. These were planned and confirmed before the onset of the pandemic and progressively installed throughout 2020. However, we now expect that this newly installed capacity may not be fully utilised in 2021 because of subdued demand due to the continued pandemic, and the higher fixed costs will impact profit margins in the short term,” Kee explains.

While the group does not commit to a fixed dividend policy, it has paid dividends twice a year since its initial public offering in 2000 and intends to maintain this practice.

In FY2020, the group raised the final dividend to 2.8 sen per share to reward shareholders because of its strong financial performance. In all, total dividends paid and payable by the group in respect of FY2020 is 4.5 sen per ordinary share, a 21.6% increase over the 3.7 sen paid in FY2019.

The 4.5 sen dividend works out to a yield of 1.5%, based on Apex Healthcare’s closing price of RM3 last Thursday.

In a research report, Am­Investment Bank Research has a “buy” call on the healthcare company based on its future prospects as a recovery play. It said pent-up demand was likely to provide the group with a lucrative FY2022.

“In the short term, however, we forecast subdued performance as a result of rising raw material costs and poor pharmaceutical demand. We expect better quarterly results going forward as the group’s SA unit is expected to draw in stronger sales,” it said. Year to date, shares of Apex Healthcare closed 16.43% lower at RM3 last Thursday, giving it a market capitalisation of RM1.4 billion.

Source: The Edge Markets