Background
Apex Healthcare Bhd ('AHeakth') is involved in the manufacture, wholesale, distribution, marketing, and retailing of pharmaceutical products and consumer healthcare products in Malaysia, Singapore, China, and Indonesia. Based on its financial statements for FY2010, the manufacturing division accounted for 66% of its pre-tax profit while contributed only 20% of its revenue. The wholesale, distribution, marketing, and retailing division contributed 80% of its revenue but generated only 33% of pre-tax profit.
Recent Financial Results
AHealth reported a jump in its net profit for QE31/12/2010 due mainly to the recognition of non-recurring income of RM 10.1 million from its investment in Xiamen Maidiken Science & Technology Co Ltd (MDK), whose total profit contribution rose 125% to RM15.9 million for year 2010. [The net profit of MDK includes a non-recurring component of RM10.1 million which is attributable to the issuance of shares at a premium to new investors by MDK's intermediate holding company for its retail and distribution operations, Luyan (Fujian) Pharma Co.,Ltd. MDK's core business operations grew strongly, driven by strong domestic demand and sound business planning and execution, of which the AHealth's share is RM 5.8 million.]
Table: AHealth's last 8 quarterly results
Chart 1: AHealth's last 11 quarterly results
Financial Position
AHealth's financial position as at 31/12/2010 is very good. Its current ratio is 2.5 times while its debts to equity 0.05 time.
Valuation
If we exclude the exceptional gain recorded in QE31/12/2010, AHealth's EPS for FY2010 is about 25 sen. Based on its closing price of RM2.69 yesterday, AHealth is trading at a PE of 10.8 times. For a smallcap, this PE multiple is deemed fair & the stock could be fully valued. However, if its investment in MDK continued to grow, the earning could increase significantly. This coupled with an expansion in its PE multiple (in line with higher growth), could lead to higher price for this stock.
Technical Outlook
AHealth is still trading at its recent high. This morning the stock broke above the horizontal resistance of RM2.70-2.72 after the company announced a final dividend of 4 sen less tax & a special dividend of 5 sen T.E. However the breakout is not convincing as the volume traded was very thin.
Chart 2: AHealth's daily chart as at Mar 1, 2011 (Source: Quickcharts)
Conclusion
AHealth could be a good stock for long-term investment due to its exposure to consumer spending in China. Its financial position & performance is fairly good. Valuation is reasonable. Good entry level is at RM2.60, assuming the current breakout above the horizontal reistance at RM2.70-2.72 failed to gain any substantial follow through.
6 comments:
Hi Alex
Can you please comment on Faber. These stock have slump 3 consecutive days, any sign of technical rebound?
I think the slump could be not only due to recent Q4 result, but also on concern of its IFM concessionaire, expire by Aug 11, which is still subject to renewal from MOH
Hi hng
Faber's fairy tale rally over the past 2 years ended once it broke its strong horizontal support of RM2.50 in January this year. On February 28, it broke the next strong horizontal support of RM2.00. It looks like it is heading to the RM1.50 horizontal support.
The big sell-off is probably triggered by the non-renewal of a major contract in Abu Dhabi ( here ). I have avoided this stock after I've noted its tricky accounting reporting in early 2010 ( here ).
Despite my serious misgiving about this company, I think the stock could be a good BUY at RM1.50 level- a retracement of about 60% of its rally from the low of RM0.50 to the high of RM3.30. However, you should nibble slowly into this stock because the selling momentum is very strong and the RM1.50 support may not hold.
Hi Alex,
The Euro/Usd has just hit 1.3950-1.3975 areas with the Dollar index closed below 76.50, confirming further bearishness on the weakened dollars,
so watch out for those Stock/Shares related to Dollar strength.
Please refer to my Blog for both FA and TA on the Dollar weakness vs Euros
http://millionaireclub88.blogspot.com/
Hi kyong
When you wrote "Euro/Usd has just hit 1.3950-1.3975 areas with the Dollar index closed below 76.50, confirming further bearishness on the weakened dollars", that's not exactly the angle that I was aiming for when I wrote my earlier post on the potential recovery in rubber glove sector.
TO use technical analysis in our trading & investment decision, you look at the support/resistance or signs of a divergence which may trigger a reversal of the prevailing trend. The USD index is bearish in the short-term & medium-term. However, we can see support in the form of an medium-term uptrend line (against the backdrop of a long-term 3-5 years downtrend line). That's the angle. Yes, it is still bearish short-term or over the next 1-3 weeks. That is the prevailing scenario. BUT... after that, we should see a rebound unless the support at 76 failed. If there is a rebound in USD at that point and at the same time rubber latex continued to slide, we may see a recovery in rubber glove sector.
Hi Alex,
For USD long term potential uptrend, can it be applied to semicon sector eg Unisem? It seems to be building a base at the support level at 1.795.
regards
Hi hkloon
The long-term outlook for USD is uncertain. FED's extremely loose monetary policy will cause further weakness in USD in the years ahead. However, the outlook for the next 6 months timeframe is what I was looking at. If USD index can rebound from the 76 mark, we may see USD index going up to the level of 80-82 in 1-2 months & then to the level of 86-88 in 3-6 months. This would be good for the exporters, including semicon players.
However, semicon players may be entering a period of weakness. The Philadelphia Semiconductor Index, SOX seems to have broken its uptrend line. It could lead to correction lasting anything from 1-4 months. This weakness would set-off the possible upside from the USD index recovery. Thus, the better play is rubber glove.
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