Date of Report: 22 October 2024
Broker: UOB Kay Hian

Company Overview

Alpha IVF is a renowned network of fertility centers across the ASEAN region, managed by leading doctors and embryologists known for their significant contributions to fertility achievements. The company operates centers in Malaysia, Indonesia, and the Philippines, and has been expanding its presence with new satellite clinics and representative offices.

Stock Performance and Target Price

• Current Share Price: RM0.37
• Target Price: RM0.40
• Upside: +9.6%
• Bloomberg Ticker: ALPHA MK
• Market Cap: RM1,749.6 million (US$406.8 million)

Major Shareholders

• Dato’ Dr. Lee Soon Soo: 43.2%
• Lee Soon Ai: 8.9%
• Ng Peng Wah: 8.3%

Recent Financial Performance (1QFY25)

• Revenue: RM43.0 million, an increase of 3.4% year-on-year, but a decline of 8.0% quarter-on-quarter due to a moderation in patient volume.
• Gross Profit: RM25.7 million (+7.6% YoY, -8.2% QoQ)
• EBITDA: RM19.4 million (-6.9% QoQ, -2.9% YoY)
• Net Profit: RM14.9 million, which met expectations, accounting for 23% of the broker’s and 22% of consensus full-year estimates.

Strategic Expansion and Future Prospects

• Alpha IVF is actively working to enhance its patient mix by establishing new facilities and representative offices. A key part of its strategy includes:
  • Sales Representative Office in China: This is expected to reduce dependence on external agents, thereby improving profit margins by cutting agent fees.
  • New Satellite Clinic in Indonesia: Aimed at boosting foreign patient volume, this new clinic is part of the company’s international expansion to capture a broader market.
  • Operations in Jakarta: The satellite clinic is positioned to facilitate Indonesian patients’ access to Alpha KL, the company’s main center in Malaysia.
  • Continued Expansion: The company aims to operate multiple centers across ASEAN, with ongoing plans to open additional satellite clinics and sales offices.

Key Financial Metrics and Projections

Financial Outlook (FY25F – FY27F)

• Revenue Growth:
  • FY25F: RM195.2 million (+16.5% YoY)
  • FY26F: RM246.7 million (+26.4% YoY)
  • FY27F: RM326.2 million (+32.2% YoY)
• EBITDA Margin:
  • FY25F: 50.7%
  • FY26F: 46.6%
  • FY27F: 46.7%
• Core PATAMI (Net Profit):
  • FY25F: RM63.7 million (+16.2% YoY)
  • FY26F: RM71.2 million (+11.8% YoY)
  • FY27F: RM95.7 million (+34.3% YoY)

Key Strengths and Competitive Edge

• High Success Rates and Superior Margins: Alpha IVF maintains industry-leading success rates and higher profit margins compared to its peers, which justifies a premium in its valuation.
• Strong Regional Presence: With its established network across Malaysia, Indonesia, the Philippines, and strategic partnerships in China, the company is well-positioned to cater to a diverse range of patients.
• Efficient Cost Management: The establishment of in-house sales offices in China is expected to reduce agent commissions, leading to improved margins.

Challenges and Risk Factors

• Execution of New Facilities: The success of Alpha IVF’s expansion hinges on the effective execution of new facilities across the region.
• High Agent Fees in China: Although the company is working to mitigate this by setting up direct sales offices, high agent fees have impacted margins.
• Key Personnel Concentration Risk: The company’s reputation and success are closely tied to its key personnel, making it crucial to retain top talent.

Environmental, Social, and Governance (ESG) Initiatives

• Environmental: Energy-efficient practices and responsible waste management, including proper disposal of medical waste.
• Social: Commitment to ethical practices, privacy protection, and fostering a diverse, inclusive work environment.
• Governance: Strong board oversight to ensure transparency and adherence to best practices, including ESG strategies.

Broker’s Recommendation

• Rating: BUY (Maintained)
• Valuation: Target Price of RM0.40, based on 28.0x FY25F PE. Alpha IVF is valued at a 20% premium over peers due to its growth prospects, superior margins, and industry-leading success rates.