Apex Healthcare Financial Ratios Analyzing

Introduction

The company Apex Healthcare Berhad (Apex) has been chosen for this investigation.

Founded in 1962 by Mr Kee Tah Peng as a single retail pharmacy outlet in Melaka & Officially listing on the Bursa Malaysia in June 2000.

Its core activities are pharmaceutical and consumer healthcare products such as its sterile eye drops under the Xepa brand name, surgical grade orthopedic devices, components, & surgical instruments under the ABio Ortho name.

Now, APEX operates in Malaysia, Singapore, China, Indonesia, Vietnam, and Myanmar

The potential competitors for Apex are other pharmaceutical and consumer healthcare products company on Bursa Malaysia such as the CCM Duopharma Biotech Bhd , Pharmaniaga, Hovid and the Taiwanese controlled YSP Southeast Asia Holding Bhd.

2.0 Evaluation of Company's Financial Ratios

Profitability Ratios

The Net Profit Margin showing a decreasing trend.

Apex's profit before tax has decrease 21% after 2010.

This probably because of the Apex's income from its investment for R&D in China, which is MDK Group, had slow down.

Over time, the difficulty and cost of securing registrations for our products with the regulatory authorities in China became apparent.

In addition, the admission of new domestic equity partners diluted Apex's share of equity, effectively reducing its span of influence and control.

Furthermore, having reached the shareholding limit for foreign shareholders, Apex also unable to further invest in MDK Group.

For the ROCE ratio, it shows a decreased then increased trend.

This decrease in ROCE might due to the uprising of Group's current liabilities.

Based on the annual report, in 2011, the Group uses forward currency contracts to manage some of the transaction exposure & recognized a loss of RM59, 442 arising from fair value changes of derivative instruments

Besides, the Group also had 8.32% growth of total assets in year 2011/ The revalued properties are actually less accumulated depreciation in year 2011.

In 2012, the Group has improved its ROCE ratio slightly.

The reason for it to happen might be in 2012, Apex achieved 4% improvement in profit after tax as mentioned in the NP margin.

Efficiency Ratios

From the chart above, it shows that Apex's receivable days ratio was quite constant from year 2010 to year 2012.

This might due to the Group's policies on its credits.

According to the annual report, the trade receivables terms for Apex is following the Pharmaceuticals and Biotechnology Industry, that is generally on 30 to 120 days terms.

More than 95% of the Group's trade receivables arise from customers with more than one year of experience with the Group and losses have occurred infrequently.

None of the Group's trade receivables that are past due nor impaired have been renegotiated during the financial year.

The chart also shown that, for the three years, Apex has a continuous growth of inventory turnover ratio.

This might due to the increase of cost of sales. As the sales increase, the cost of sales increases too.

Based on the annual reports, during 2010, the Group recognised income of RM 15.9 million arising from its investment in China MDK Group.

In 2012, the Group's net profit margin was improved.

Based on 2012 annual report, the company hit the highest sales among three years causing its profit after tax and non-controlling interests is 4% better than in 2011 as mentioned in NP margin ratio.

Liquidity Ratios

Current ratio is showing then an increased then decreased trend.

In year 2011, there was significant increase in inventories, trade and other receivables, and cash and bank balances.

This might caused by reasons such as the increase in sales to meet from all Apex's subsidiaries and the gain from vast investment of the Group in different country as mentioned in NP margin.

On the other hand, the company maintained a good liquidity performance for quick ratio as well.

Again, this increase in quick ratio might due to the increase in current assets, specifically in trade and receivables results from increased sales and vast investment of the Group in domestic country and also overseas as mentioned in NP margin.

Investor Performance Ratios

In 2011, there was a drop in earnings per share.

This might due to the profit attributable to the ordinary shareholders had decreased in 2011.

There was a decrease of 21% in profit before tax in 2011 due to the decline of income from Apex's associated company in China.

It was stated in the annual report that the difficulty and cost of securing registrations for our products with the regulatory authorities in China has increased.

Furthermore, the admission of new domestic equity partners in China further diluted Apex's share of equity, effectively reducing its span of influence and control.

In 2012, the earnings per share rise slightly.

This probably because of the higher sales achieved within the year. The Group's net profit margin was improved by 0.49% in 2012.

This is attributed to the recognition of capital gains tax amounting to RM 2.5 million on completion of the Group's disposal of its equity stake in Xiamen MDK Group in the first quarter of 2012.

The dividend cover ratio showing a descending trend. During financial year 2011, The Group paid out a final taxable dividend amounting to RM3, 514,383 as compared to RM 2,811,506 in year 2010. Continue to the following year, Apex Healthcare paid out a final dividend of RM2, 108,630. These increases in dividend payment were due to the increase of revenue generated. In 2010, Apex generated Group revenue of RM314 million, whereas in 2011 and 2012, the Group generated revenue of RM 366 million and RM399 million respectively. However, the reason for the going down movement of dividend cover ratio from 2010 to 2012 might because of the tax that charged on the income had increased. In 2011, the Group's effective tax rate was rise up to 22.1% and it continued to expand to 25.3% in 2012, causing the ability of Apex to pay its shareholders' dividends has weakened (Apex Healthcare Berhad annual report, 2010,2011& 2012).

Apex's debt ratio had increased slightly in year 2011 but back to 0.25 again in year 2012. The reason that might caused the increment in debt ratio might due to the amount of total liabilities that had risen RM8, 292,124. Based on the annual report, the Group had a loss of RM59, 442 during year 2011, arising from fair value changes of derivative instruments during year 2011 or additional deferred tax liabilities that included investment in associates, accelerated capital allowances, and revaluation of property, plant and equipment. Moreover, the expansion in trade and other payables comprising amounts due to subsidiaries and accrual of directors' fee may put an effect of uprising in debt ratio too (Apex Healthcare Berhad annual report, 2011). In year 2012, the Group's debt ratio declined back to 25%, indicating the Group had done their job in controlling its debts.

In the perspective of interest cover ratio, the value of interest cover shoot up to 4.4 times in 2011 indicating the Group performing excellent in managing its interest and debts. The factor that might rise up the interest cover ratio would be the earnings before interest and tax. This may attribute to the 16.67% increase in revenue and 12.18% increase in other income comprising interest income, rental receivable from operating leases, other than those relating to investment properties, gain on disposal of property, plant and equipment, gain from fair value adjustment of investment properties, gain from fair value adjustment of derivative financial instruments, and foreign exchange gains (Apex Healthcare Berhad annual report, 2011). In year 2012, the Group's ability to repay its interest and debt had fall dramatically to 1.80 times. This might due to the decline in profit before interest and tax. Based on the annual report, in 2011, the Group's own brand Agnesia, the market leader in the medicated powder category in Malaysia, boosted by new promotional strategies including radio advertisements, adding higher to the Group's marketing expenses for the year. As well, the Group's effective tax rate for 2012 is rather