HLIB Research

PP 9484/12/2012 (031413)

Adventa Bhd (BUY / INITIATION) 03 March 2014

HEALTHCARE Price Target: RM1.40
COMPANY INSIGHT Share Price: RM1.14

Switching to new growth sectors Low Yee Huap, CFA

Highlights Adventa is involved in three main businesses namely, yhlow@hlib.hongleong.com.my
(1) distribution of healthcare products (supply of hospital (603) 2168 1078
consumables and supply chain management) under Sun
Healthcare (M) Sdn Bhd; KLCI 1,828.7
(2) commercial sterilisation and warehousing of hospital Expected share price return 22.8%
supplies and specialist medical products under Electron Expected dividend return 0.0%
Expected total return 22.8%
Beam Sdn Bhd; and
(3) home renal dialysis treatment via the provision of
Share price
equipment, supplies, nursing care, monitoring, and RM Pts
ADV (LHS) KLCI (RHS)
laboratory test management under Lucenxia (M) Sdn Bhd. 1.40 1,880

1.20 1,830
In November 2012, the group divested its previous core 1.00
business in glove manufacturing, switching to new growth 0.80
1,780

sectors as a medical industry related service provider. 0.60

1,730

1,680
Against a low base of comparison and assuming smooth 0.40

0.20 1,630
implementation and execution of new businesses and
0.00 1,580
expansion plans, Adventa is expected to post sharply higher Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14

revenue and earnings going forward.

Information
Risks Successful roll-out of the new and projected high-growth
Bloomberg Ticker ADV MK
home renal dialysis business is in part dependent on the
Bursa Code 7191
governments support in providing subsidies to patients Issued Shares (m) 152.8
requiring the treatment given the high average costs of Market cap (RM m) 107.0
RM3,200 per patient per month. 3-mth avg. Volume (000) 176
Potential foreign exchange fluctuations with the importation Price Performance 1M 3M 12M
of machinery and equipment parts. Absolute 13.9 7.5 310.7
Forecasts New coverage. Relative 12.1 6.9 298.6

Rating BUY / INITIATION Major shareholders

Low Chin Guan 38.2%
Positives Lembaga Tabung Haji 9.4%
(1) First-mover advantage in home renal dialysis treatment Clearstream Banking S.A. 8.8%
and almost monopolistic position in commercial sterilisation Low Lea Kwan 2.8%
& warehousing activities within Asia;
Summary Earnings Table
(2) Relatively high barrier to entry for potential competitors FYE Oct (RMm) 2013A 2014F 2015F 2016F
due to high cost of machinery and technological know-how; Revenue 27.4 35.5 67.2 132.6
and Pre-tax Profit 83.0 7.1 17.1 37.7
(3) Sustainable longer-term growth prospects given Rpt. PATAMI 82.4 5.0 11.9 26.4
increasing exposure to niche healthcare segments. Nom. PATAMI 82.4 5.0 11.9 26.4
Nom. EPS (sen) 53.9 3.3 7.8 17.3
Negatives Nom. P/E (x) 2.1 34.9 14.6 6.6
(1) Strong projected group revenue and earnings growth P/BV (x) 2.4 2.2 1.9 1.5
rates are highly reliant on successful implementation and Gross DPS (sen) 0.0 0.0 0.0 0.0
execution of the new home renal dialysis operations; Div. yield (%) 0.0 0.0 0.0 0.0
ROE (%) 113.0 6.4 13.3 22.7
(2) High working capital requirements estimated for new ROA (%) 135.6 6.6 12.6 19.7
equipment build and business expansion; and BV/share (RM) 0.48 0.51 0.59 0.76
(3) The shares are tightly held currently, resulting in HLIB
relatively low trading volumes.
Valuation Initiate coverage on Adventa with BUY and TP of
RM1.40/share, based on FY10/15 PER of 18x, which is at a
30% discount to Asian healthcare players.
We believe the discount is justified given Adventas relatively
small size at the moment, and the stocks lack of share
liquidity.

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 HLIB Research | Adventa Bhd www.hlebroking.com

Figure 1: Adventa corporate structure

Source: Company annual report

Figure 2: Estimated revenue breakdown

Source: HLIB estimates

Figure 3: Regional opportunities

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 HLIB Research | Adventa Bhd www.hlebroking.com

Financial Projections for Adventa Bhd (TP: RM1.40)

Income Statement Quarterly financial summary
FYE Oct (RMm) 2012A 2013A 2014E 2015E 2016E FYE Oct (RMm) 4Q12 1Q13 2Q13 3Q13 4Q13
Revenue 14.2 27.4 35.5 67.2 132.6 Revenue 4.8 3.6 10.9 7.3 5.7
EBITDA 30.1 85.7 13.4 25.8 51.9 Op. expenses (1.3) (3.2) (9.0) (5.3) (4.3)
Dep. & Amort. (19.9) (2.8) (5.5) (7.1) (10.8) Net forex loss (0.2) (0.0) (0.0) (0.0) (0.0)
EBIT 10.2 82.9 7.8 18.7 41.1 Other op. income 0.0 196.2 0.3 0.2 0.2
Interest income 1.0 1.6 1.0 1.0 1.0 EBIT 3.4 196.5 2.2 2.2 1.6
Finance costs (9.0) (1.5) (1.7) (2.6) (4.4) Finance costs (0.3) (0.2) (0.2) (0.2) (0.2)
JV & Associates 0.0 0.0 0.0 0.0 0.0 Pretax profit 3.1 196.3 2.0 2.1 1.4
Prs-tax profit 2.2 83.0 7.1 17.1 37.7 Taxation (1.0) (0.0) (0.4) (0.7) (0.1)
Taxation (0.8) (1.2) (2.1) (5.1) (11.3) Continuing op. 2.1 196.4 1.7 1.3 1.3
Discontinued op. 24.1 0.6 0.0 0.0 0.0 Discontinued op. 9.5 1.3 0.0 0.0 0.0
Minorities 0.0 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 0.0
PATAMI 25.6 82.4 5.0 11.9 26.4 PATAMI 11.6 197.7 1.7 1.3 1.3
Issued sh. capital (m) 152.8 152.8 152.8 152.8 152.8
Basic EPS (sen) 16.7 53.9 3.3 7.8 17.3 Core EPS (sen) 7.6 129.4 1.1 0.9 0.9

Balance Sheet Ratios

FYE Oct (RMm) 2012A 2013A 2014E 2015E 2016E FYE Oct (RMm) 2012A 2013A 2014E 2015E 2016E
Fixed assets 35.0 43.4 55.4 71.4 108.4 EPS (sen) 16.7 53.9 3.3 7.8 17.3
Other LT assets 13.1 16.8 20.4 25.9 33.5 PER (x) 6.8 2.1 34.9 14.6 6.6
Cash 1.6 23.5 15.2 14.4 14.2 Gross DPS (sen) 0.0 0.0 0.0 0.0 0.0
Receivables 3.6 5.0 6.5 12.3 24.2 Div. yield (%) 0.0 0.0 0.0 0.0 0.0
Inventory 7.6 8.7 11.3 21.3 42.1 BV/share (RM) 1.56 0.48 0.51 0.59 0.76
Other ST assets 469.2 0.5 0.7 1.3 2.5 P/B (x) 0.7 2.4 2.2 1.9 1.5
Total Assets 530.1 97.9 109.5 146.6 224.9 FCF/share (sen) (0.1) 0.3 (0.1) (0.1) (0.2)
Payables 24.0 13.7 17.7 33.6 66.3 Net gearing (%) 6.1 n.c. n.c. 5.4 15.5
ST debt 9.7 5.5 7.1 13.4 26.4 Enterprise value 188.8 162.0 171.9 179.0 192.2
Other ST liabilities 250.9 (0.0) 0.9 3.9 10.1 EV/ EBITDA (x) 6.3 1.9 12.9 6.9 3.7
LT debt 6.5 5.8 5.8 5.8 5.8 ROE (%) 10.7 113.0 6.4 13.3 22.7
Total Liabilities 291.1 25.0 31.6 56.7 108.7 ROA (%) 10.1 135.6 6.6 12.6 19.7
Share capital 76.4 53.5 53.5 53.5 53.5
Reserves 162.0 19.4 24.4 36.4 62.8
Shareholders' funds 238.4 72.9 77.9 89.8 116.2
Minorities 0.7 0.0 0.0 0.0 0.0

Cashflow Analysis Assumptions

FYE Oct (RMm) 2012A 2013A 2014E 2015E 2016E FYE Oct (RMm) 2012A 2013A 2014E 2015E 2016E
EBIT 10.2 82.9 7.8 18.7 41.1 EBITDA margin (%) 212.0 312.7 37.7 38.4 39.2
Dep. & Amort. 19.9 2.8 5.5 7.1 10.8 EBIT margin (%) 71.9 302.5 22.0 27.8 31.0
Others (2.9) (75.7) 0.0 0.0 0.0 PBT margin (%) 15.8 302.9 20.1 25.4 28.5
Working Capital (5.4) (37.8) (24.5) (37.1) (58.6) Net margin (%) 180.0 300.6 14.1 17.8 19.9
Operating cashflow 21.9 (27.9) (11.1) (11.3) (6.6)
Tax paid (0.6) (0.2) (1.2) (2.1) (5.1)
Financing (2.4) (0.5) (0.7) (1.6) (3.4)
Cash earnings 18.9 (28.5) (13.0) (15.0) (15.1)
Dividends 0.0 (199.8) 0.0 0.0 0.0
Capex (40.1) (4.5) (6.0) (8.0) (18.5)
Asset sales 0.1 311.7 0.0 0.0 0.0
Investment & others (3.1) 106.6 (1.9) (3.7) (8.5)
Change in sh capital 0.0 (61.1) 0.0 0.0 0.0
Others 0.0 13.7 9.1 15.9 20.4

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 HLIB Research | Adventa Bhd www.hlebroking.com

Disclaimer

The information contained in this report is based on data obtained from sources believed to be
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be at your own risk. Hong Leong Investment Bank
Berhad (10209-W)
1. As of 03 March 2014, Hong Leong Investment Bank Berhad has proprietary interest in the Level 23, Menara HLA
following securities covered in this report: No. 3, Jalan Kia Peng
(a) -. 50450 Kuala Lumpur
Tel 603 2168 1168 / 603 2710 1168
2. As of 03 March 2014, the analyst, Low Yee Huap, who prepared this report, has interest in the Fax 603 2161 3880
following securities covered in this report:
(a) -.

Equity rating definitions

BUY Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside.
TRADING BUY Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity.
HOLD Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside.
TRADING SELL Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity.
SELL Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months.
NOT RATED No research coverage and report is intended purely for informational purposes.

Industry rating definitions

OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months.
NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return between 5% and +5% over 12-months.
UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% over 12-months.

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