Australian Pharmaceutical Industries Limited

API Details

Business Update: Australian Pharmaceutical Industries Limited (ASX: API) is a wholesale distributor of pharmaceutical, medical, beauty, healthy products and support retailers through a network of Priceline Pharmacy franchise stores in Australia. The market capitalisation of the company as of 7 July 2021 stood at ~$ 554.23 million. As per a recent announcement, API has appointed George Tambassis to serve as a non-executive director in the company, effective from 07 June 2021.

Distribution Agreement with Pfizer: Pfizer Australia announced a collaboration with API for its wholesale distribution model, effective from 1 September 2021. API expects to get an additional ~$4 million in EBIT on an annualised basis from 1 September 2021, owing to the agreement.

H1FY21 Financial Performance: During the period, API's finances have been impacted due to the COVID-19 pandemic and lockdown restriction as the company has recorded a decline in its revenue by 2.6% to ~$2.0 billion, compared on a pcp basis. API has reported a decrease in NPAT by 29.3% to $15.9 million, compared to the previous corresponding period. However, the Clear Skincare network has reflected pent up demand post lockdown and recorded a revenue increase of 11% to $27.3 million on a pcp basis. Additionally, Pharmacy Distribution increased gross profit to ~$114 million from ~$112 million on a pcp basis. The company has strategically invested $50.5 million on retail digital development projects and the opening of a new skincare clinic. The cash position of the company stood at ~$55.2 million as of 28 February 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Outlook: The company is focused on target areas to increase the foot traffic for new Priceline stores. API is also investing in digital strategy to match the rising customer expectations and speed up the fulfilment.

Key Risks: API has been impacted by the COVID-19 pandemic, like State-imposed short-term lockdowns, close of Clear Skincare Clinics, and pressure on supply chain affected the financials of the company, and the COVID uncertainty still prevails.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a recent announcement, the company decided to pay an interim dividend of 1.5 cents per share for H1FY21, representing a payout of 47% of NPAT. The stock of API is trading below its average 52-weeks' levels of $1.005-$1.375. The stock of API gave a positive return of ~7.97% in the past nine months and a negative return of ~2.40% in the past one month. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer median EV/EBITDA (NTM trading multiple), considering the uncertainty over COVID-19 impact and decrease in top-line and bottom-line growth. For this purpose, we have taken peers such as Compumedics Ltd (ASX: CMP), Regis Healthcare Ltd (ASX: REG), Paragon Care Ltd (ASX: PGC). Considering the current trading levels and expected upside in valuation levels, economic recovery, strategic distribution collaboration, investing in digital platform, higher asset turnover Ratio from Industry Median and the key risks associated with the business, we recommend a 'Speculative Buy’ rating on the stock at the current market price of $1.115, down by 0.889% (as on 7 July 2021, 10:57 PM (GMT+10), Sydney, Eastern Australia).

API Daily Technical Chart, Data Source: REFINITIV

VIP Gloves Limited

VIP Details

Key Managerial Appointments: VIP Gloves Limited (ASX: VIP) engages in the production of nitrile disposable gloves globally that is used in medical and healthcare, food and beverages, electronics, and manufacturing industries. The market capitalisation of the company as of 7 July 2021 stood at $36.93 million. As per a recent announcement, the company has appointed Ms Kay Wen Chen as Executive Director of VIP and Mr Chin Kar (Jimmy) Yang, to serve as a group Managing Director in the company.

Dividend declaration: VIP has declared an unfranked interim dividend of 0.18 cents per share, equivalent to 53% of first-half NPAT to the shareholders on 31 March 2021, surpassing the Board's initial commitment on a dividend payout ratio of between 20% and 40%.

Q3FY21 Financial Performance: During the quarter, the company has recorded an increase in its revenue by 31% to ~$16 million, compared to a quarterly basis. The company has shown sales improvement due to its expanded capacity and higher average selling prices (ASP). VIP has reported an increase in its total production by 18% to 163 million pieces in Q3FY21, compared to the previous quarter. Additionally, the net cash from operations has increased to $5.8 million in Q3FY21 against $0.4 million. VIP has recorded an improvement in a receipt from customers by 48.7% to $17.1 million in Q3FY21. The quarter ended with a cash balance of $3.82 million as of 31 March 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Outlook:  Post pandemic MAGMA expects to experience annual market growth of between 12% and 15% per annum in the longer term. The company also reported committed sales through to the end of 2021.

Key Risks: To meet the growing demand, VIP needs to expand the production capacity, which requires adequate capital. Therefore, the company should strategically raise capital from different financial instruments.

Stock Recommendation: Due to the rise in COVID-19 cases, Malaysia Government has announced a strict lockdown for 14 days in the country. However, the company has mentioned that there was no impact on the production of nitrile gloves, and it continued to operate as it is in an essential sector. The stock of VIP is trading below its average 52-weeks’ levels of $0.038-$0.220. The stock of VIP gave a positive return of ~23.68% in the past one year and a negative return of ~2.08% in the past three months. Considering the current trading levels, the improvement in financial performance, rise in demand due to COVID-19, optimistic outlook and the key risks associated with the business, we recommend a 'Speculative Buy rating on the stock at the current market price of $0.047 (as on 7 July 2021, 10:57 PM (GMT+10), Sydney, Eastern Australia).

VIP Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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