OPTIMAX: Earnings Below Expectations on Cost Headwinds, Analyst Maintains ‘Buy’ with Higher Target Price

Performance Review

A prominent investment bank reported that the core net profit for the first nine months of the 2025 fiscal year saw a modest 4% year-on-year increase, reaching RM10 million. However, this performance fell short of both the bank’s and consensus estimates, accounting for only 63% and 64% of full-year forecasts, respectively. Despite the earnings miss, revenue for the nine-month period demonstrated stronger growth, climbing 7% year-on-year to RM100 million. This revenue growth was primarily driven by contributions from newly established satellite clinics and centres in East Malaysia and Cambodia, complemented by effective marketing strategies.

Operational Challenges and Sequential Performance

The subdued profit growth, which saw a year-on-year increase of only 2% in Pre-Tax Profit (PBT), was attributed to higher operating costs and underutilisation at the newer facilities. The deviation from expectations largely stemmed from weaker-than-anticipated margins due to these elevated operational expenses. Looking at the third quarter of 2025 in isolation, revenue continued its upward trend, rising 3% quarter-on-quarter to RM35 million. While regions like Cambodia recorded exceptional growth, achieving PBT breakeven at its Kota Kinabalu centre, overall earnings for the quarter declined by 33% quarter-on-quarter. This sequential dip was also primarily a result of increased operating costs, particularly from additional hiring for new ambulatory care centres (ACCs).

Future Outlook and Investment Rationale

Despite current cost pressures, the investment bank anticipates that margins will improve as the utilisation rates at the new care centres gradually increase, thereby offsetting the impact of higher staffing costs. Although the firm has revised down its 2025-27E earnings per share (EPS) forecasts by 5-18% to account for higher operating expenses, it has simultaneously raised its 12-month target price to RM0.79, up from RM0.68. This revised target price is based on a higher Price-to-Earnings (PE) multiple of 25x, reflecting a valuation at one standard deviation above its three-year mean (compared to a historical mean of 19x). This higher valuation is justified by the company’s transition into a stronger cash-generation phase and an increasing mix of premium surgical procedures, which are expected to support margin expansion. The investment bank maintains its “BUY” recommendation, favouring the company as a local niche operator in the eye-care segment with aggressive expansion plans poised to drive robust earnings growth.

Key Risks

Potential downside risks identified in the report include weaker consumer spending, which could lead to reduced foot traffic, possible delays in the company’s expansion plans, and a shortage of licensed medical practitioners.