Apex Healthcare Berhad (“AHealth”) (KLSE:AHEALTH) and Y.S.P. Southeast Asia Holding Berhad (“YSP”) (KLSE:YSPSAH) are two leading pharmaceutical groups listed on the Malaysian stock exchange.
In this article, we will make some quick-and-dirty comparisons, numbers-wise, between the two companies to help you determine which might give you more value for money.
Introducing the companies
AHealth was founded in 1962 as a retail pharmacy in Melaka, and today is involved in the development, manufacturing, sales and marketing, distribution and wholesaling of pharmaceuticals and consumer healthcare products. The group is also a contract manufacturer of orthopaedic devices for multinational orthopaedic companies.
On the other hand, YSP is a Malaysian pharmaceutical company which manufactures a wide array of pharmaceutical, over-the-counter (OTC), veterinary and aquatic products. Besides, the group has also diversified into traditional herbal products.
The table below shows the market capitalization, revenue and profit levels for both companies. Note that the market capitalisation is as of 18 September 2020, and the revenue and profit numbers both relate to the fiscal year 2019.
|(All numbers in RM)|
|Market Capitalisation||1.51 billion||340.45 million|
|Revenue||688.79 million||295.62 million|
|Profit after taxation||52.77 million||22.48 million|
|Profit attributed to owners of the company||52.75 million||23.01 million|
Round 1: Profitability
We start by looking at the profitability of each company in terms of their gross profit margin, net profit margin, and return on equity ratio.
|Fiscal year 2019|
|Gross profit margin||22.46%||44.18%|
|Net profit margin||7.66%||7.60%|
|Return on equity (“ROE”) ratio||12.40%||6.90%|
While YSP’s gross profit margin of 44.18% is almost double of that of AHealth’s gross profit margin of 22.46%; AHealth’s net profit margin of 7.66% has marginally edged YSP’s net profit margin of 7.60%.
Meanwhile, AHealth’s ROE of 12.40% is significantly higher than YSP’s ROE of 6.90%. This gives the impression that AHealth’s management is more efficient in allocating and converting every dollar of investor capital into profit. Therefore, we will award the win to AHealth since the company has won two of the three profitability ratios.
Round 2: Liquidity
|Fiscal year 2019|
|Net gearing ratio (Net debt / equity)||N/A – net cash||N/A – net cash|
From the table above, we find that both companies have pristine balance sheets. Investors should not be concerned about the liquidity positions of both AHealth and YSP since both companies are in net cash positions. In other words, both companies have more than sufficient cash to meet all its short and long term debt obligations.
Notwithstanding the above, YSP can be seen to be in a stronger financial position since its current and cash ratios are substantially higher than AHealth. But it does beg the question whether YSP’s management is overly conservative since its cash holding is more than twice of its current liabilities.
Round 3: Growth
We will compare the compounded annual growth rates of revenue and net profit of the two companies for the past 5 years. Companies that can grow their sales and profits meaningfully can see their share price rise.
|Fiscal year 2015-2019|
|Net profit growth||11.40%||-6.47%|
While YSP has slightly better revenue growth, AHealth has far superior net profit growth. YSP has seen a decline in net profits over the last 5 years! This is concerning as it gives that impression that YSP’s business has stagnated and the company may be losing market share to its competitors. Since our preference is to invest in companies with both revenue and net profit growth, we will award the win to AHealth.
Round 4: Valuation
Finally, we will compare the price to earnings (“PE”) and dividend yields of the companies.
|Share price (as at 18 September 2020)||RM3.17||RM2.42|
(Source: Google Finance)
YSP is trading at a much cheaper valuation compared to AHealth since its PE ratio of 11.54 is much lower than AHealth’s PE ratio of 27.03. This is understandable as investors may have more confidence in AHealth’s management track record of growing investors’ capital.
While both companies pay dividends, their low dividend yields are not attractive since they are lower than local bank fixed deposit rates. Hence, both AHealth and YSP may not be attractive prospects to investors seeking dividends as income.
Overall, both companies are equally matched in terms of financial stability. However, investors seeking for growth may be more interested to research AHealth further due to its better growth rates in revenue and profits as well as superior ROE ratio. YSP could be seen as a less attractive company despite its cheaper valuation since the company has not been able to meaningfully grow its bottom line over the period under review.
While this is a simple exercise, comparing just a few financial aspects of both companies, it hopefully serves as a good starting point in deciding which company is more interesting to investigate further.
Aside from the financial metrics, we urge investors to carefully study the prospects for each business, and consider the capabilities of each management team in executing their business plans.