Founded in 1962, Apex Healthcare Bhd (Apex) has emerged to be amongst the leading healthcare groups in Malaysia. As at 1 January 2019, Apex is worth RM 913.7 million in market capitalization, nearly a 10 times increase from its value in 1 January 2009.

Source: Google Finance

 

In this article, I’ll revisit its fundamentals and bring you an update on its recent financial results. Out of which, we would find clues of what made shareholders of Apex wealthy and have a better appreciation of value investing. I would also discuss Apex’s plans for growth and introduce a few valuation metrics to assess its potential for investment at current stock price of RM 7.80 a share.

Thus, here are 10 things to know about Apex before you invest.

  1. Retail
    In 1962, Apex started as a pharmacy at Jalan Munshi Abdullah, Melaka under Apex Pharmacy. In decades, it expanded to 60 retail pharmacies in Malaysia and Singapore. In 2005, it sold all of its outlets in Melaka to Watson except for its first outlet at Jalan Munshi Abdullah. Watson had licensed the right to use ‘Apex Pharmacy’ trademark for 5 years.

    The trademark lapsed in May 2010. Subsequently, in October 2010, the management has returned to the retail scene by opening its brand new Apex Pharmacy outlet in Johor Bahru with 1,420 sq. ft. of retail spaces.

  2. Manufacturing
    Apex manufactures off-patent pharmaceutical products under Xepa, its brand name in its 10-acre site in Cheng Industrial Estate, Melaka. These products are cough mixtures, anti-infectives, anti-hypertensives, and as well as dermatological and ophthalmological products.

    In September 2017, Apex was awarded the EU GMP Certificate, thus, is recognised as a world-class pharmaceutical manufacturer. This enables Apex to capitalize on opportunities in Europe while strengthening Apex as a manufacturer of choice in its existing market.

    In Q4 2016, Apex has begun its construction of a new Oral Solid Dosage manufacturing plant (SPP NOVO) at its existing facility in Melaka with a cost estimate of RM 80 million. The plant is scheduled to commence its operations in Q4 2018.

  3. Distribution
    Apex runs two distribution entities in Malaysia and Singapore under its name, Apex Pharma. In Malaysia, Apex Pharma distributes well-known brands such as Nestle, 3M, and Rigel Pharma from 8 depots situated in Kuala Lumpur, Ipoh, Johor, Melaka, Seremban, Penang, Kota Bahru and Kota Kinabalu. In Singapore, Apex Pharma is distributing from a 50,000 sq. ft. industrial building at Loyang Way 1.

  4. Management
    On 19 March 2018, Apex Pharmacy Holdings Sdn Bhd and Washington H Soul Pattinson and Company Ltd (WHSP) are the 2 key shareholders of Apex with 40.61% and 30.27% direct shareholdings respectively.

    Dr. Kee Kirk Chin is appointed as Apex’s Chairman and CEO. His brother – Kee Kirk Chuen sits in the board as a non-executive director. Robert D Millner who is the Chairman of WHSP is appointed as its non-executive director.

  5. Profitability
    For the last 10 years, Apex has achieved growth in sales and profits. Its group revenues had grown from RM 259.2 million in 2008 to RM 620.3 million in 2017. With stable margins, Apex’s shareholders’ earnings had increased from RM 14.8 million in 2008 to RM 44.5 million in 2017. It is a earnings growth of 13.0% a year. During the 10-year period, Apex has 10-Year Return on Equity (ROE) Average of 13.13% a year. Hence, Apex has made, on average, RM 13.13 in annual earnings from every RM 100 in shareholders’ equity from 2008 to 2017.

        

    Source: Apex’s Annual Reports

  6. Cash Flows
    Over the last 10 years, Apex has generated RM 300.5 million in positive cash flow from operations. It had spent as much as RM 127.9 million in capital expenditures and had paid out RM 110.2 million in dividends to its shareholders. Apex has grown its cash balances from RM 5.7 million in 2008 to RM 74.9 million in 2017.

    As at 30 September 2018, Apex has further increased its cash balances to RM 75.8 million. It has a gearing ratio of 5.48% and a current ratio of 2.41.

    Source: Apex’s Annual Reports

  7. P/E Ratio
    For the last 12 months, Apex made RM 54.578 million in shareholders’ earnings or RM 0.466 in earnings per share (EPS). Based on its current stock price of RM 7.80 a share, Apex’s current P/E Ratio is 16.74, which is at its highest over the last 10 years.

  8. PEG Ratio
    In Point 5, Apex has achieved earnings growth of 13.0% per annum for the last 10 years. Thus, based on its P/E Ratio of 16.74, its PEG Ratio is 1.29. According to the PEG Ratio, it indicates Apex’s current stock price is overvalued as its PEG Ratio is above 1.0.

  9. P/B Ratio
    On 30 September 2018, Apex has net assets of RM 3.12 a share. Thus, Apex’s current P/B Ratio is 2.50. It is the highest P/B Ratio recorded in the last 10 years.

  10. Dividend Yields
    For the past 12 months, Apex paid out 13.0 sen in dividends per share (DPS). Thus, its dividend yield is 1.67% per annum, which is the lowest in 10 years and below 3% in local fixed deposit rates in Malaysia.

VIA’s Verdict

So, what made shareholders of Apex wealthy?

If you have noticed, Apex’s growth in stock prices had mirrored growth in both its revenue and shareholders’ earnings over the long-term. Hence, it is yet one classic example of growth in profits leading to growth in stock prices. This sums up the power of value investing.

Is this a good time to invest in Apex?

Presently, Apex has sustained growth in sales and profits and has maintained a solid balance sheet with high current ratio, low gearing ratio and a healthy cash balance. In terms of valuation, Apex is now trading at its highest in terms of P/E and P/B Ratio, above 1.0 in PEG Ratio, and offers its lowest dividend yields.

They indicate that Apex is less attractively priced today than before particularly if you are a value investor.

You could ask, ‘Would Apex go higher?’

My answer: ‘I don’t know.’. Instead, let me ask you this: ‘If Apex drops in stock price, what do you intend to do?’

If you are attracted to Apex because of its stock price, chances are: You are not really a value investor as investors aim to ‘Buy Low, Sell High’.

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