(Dec 22, 93 sen)
Maintain hold with a higher target price (TP) of RM1.02: Adventa Bhd’s financial year 2015 (FY15) revenue of RM41.9 million met our expectations (99% of our full-year forecast). However, its profit after tax and minority interests, which declined 29% year-on-year (y-o-y) to RM3.1 million, was largely below our expectations, accounting for 54% of our FY15 forecast, due to higher expenses for the Home Dialysis business, higher import costs due to a weakening ringgit and maintenance of equipment for Adventa’s sterilisation provider division.
Adventa recorded a 20% rise y-o-y in turnover. Overall profit before tax plunged 25% y-o-y, purely resulting from the weaker ringgit, and higher expenses for purchases and maintenance in its sterilisation provider segment.
For its healthcare product segment, fourth quarter of FY15 (4QFY15) revenue dropped 8% y-o-y, but increased 17% quarter-on-quarter (q-o-q).
The lower revenue was attributed to slower uptake by hospitals of certain disposable products. Thanks to a higher sales volume compared with 4QFY14, earnings before interest and tax (Ebit) improved 140% y-o-y.
For 4QFY15, the group recorded RM7.3 million in revenue (versus RM7.9 million in 4QFY14) and RM200,000 in Ebit (versus a loss of RM400,000 in 4QFY14).
For the sterilisation provider segment, sales decreased 2% and 20% q-o-q and y-o-y respectively. Ebit also charted negative growth q-o-q and y-o-y.
The weak performance of the segment was due to lower volumes arising from scheduled maintenance periods, as well as the weak ringgit, which translated into higher system maintenance costs and lower margins for the group.
Most of its supplies and equipment are purchased in US dollar. To curb the weaker ringgit effect on the group’s earnings and to increase margins, the management plans to increase prices of its medicinal supplies and products.
Risks include the roll-out of the new and projected high-growth home renal dialysis business, which is dependent on a smooth transition of patients from hospitals and private treatment centres to home treatment.
Trials are ongoing with further investment in patient care education and training, as well as extending the reach into rural regions.
We cut our forecasts by 46% to 47% to take into account higher expenses and deferred contributions from the Home Dialysis business.
Positives include its first-mover advantage in home renal dialysis treatment, and its almost monopolistic position in commercial sterilisation and warehousing activities within Asia; a relatively high barrier to entry for potential rivals due to high costs of machinery and technological know-how; and its sustainable longer-term growth prospects given its increasing exposure to niche healthcare segments.
Negatives include strong projected group revenue and earnings growth rates, which are highly reliant on successful implementation and execution of the new home renal dialysis operations; high working capital requirements estimated for new equipment and business expansion; and its shares that are tightly held currently, resulting in relatively low trading volumes.
We maintain our “hold” call on Adventa with a higher TP of RM1.02, as we roll forward our valuations to calendar year 2016 (CY16) based on CY16 price-earnings ratio of 19 times, which is at a 25% discount to Asian healthcare players. — HILB Research, Dec 21
ADVENTA (7191) 稳大 - Adventa’s FY15 revenue of RM41.9m within expectations
http://www.theedgemarkets.com/my/article/adventa%E2%80%99s-fy15-revenue-rm419m-within-expectations
