APEX HEALTHCARE BERHAD [S]

Apex Healthcare Berhad which involves in manufacturing off-patented pharmaceuticals, pharmaceuticals devices and wholesale distributions network in Malaysia. As pharmaceutical industry is expanding in a high rate, few manufacturers are competing aggressively against each other in terms of domestic and export market. Fortunately, it involves high cost such as purchase of patent and expensive medical facilities that provide a high barrier of entry. Another factor favouring the growth of Apex Healthcare is through Malaysia’s Economic Transformation Program, it is selected as one of the manufacturer that obtain contracts from developed countries to manufacture medical devices. Up to date, 20% of Apex Healthcare Berhad is generated from overseas market.

Operating cost has been a huge problem due to increase in electric tariff together with rising carriage cost. As there are full automations in manufacturing these products, the company rely much on these utilities. Over reliance on contracts via government departments will also result in exposure of company vulnerabilities in case there are any global financial crises.

FCF is on an upward trend with a 10% compound growth rate First look into ROE and ROA is satisfactory as it surround the standard rate of 17% and 7% respectively. However, further look into cash flow company recently dispose off subsidiary to purchase investment security worth 30 million. This might result in huge disaster upon economic volatility period.  Since the company is in pharmaceutical industry, they need to fork out average of RM20,000 to purchase intangible assets which include R&D. Alongside, it is a norm for them to purchase their associate companies which might result in high capital expenditure of up to 10 million. As cash generated from their own operation is not sufficient sometimes, company also draw quite amount of term loans to sustain their activities which might result in excessive interest expenses. With its book value at RM2.3 per share and market price of RM4.5 per share, it is overpriced by the market. Overall, pharmaceutical industry is set to grow steadily in the future as it remains a resilient cash generating machine.

Stock: AHEALTH Code: 7090 Company: APEX HEALTHCARE BERHAD [S]