CU: Despite Recent Financial Headwinds, Strategic Expansion Supports ‘Buy’ Rating with 25% Upside

An investment bank report highlights that recent financial performance for a leading fertility specialist group fell short of expectations, with its IHFY26 net profit of RM27.3 million accounting for only 39% of both analyst and consensus full-year estimates. This shortfall occurred despite a 15.3% increase in IHFY26 revenue, which reached RM99.4 million.

Performance Review

On a quarter-on-quarter basis, the group’s 2QFY26 Profit Before Tax (PBT) saw a significant decline of 21.5% to RM16.5 million, alongside a 9.2% drop in revenue to RM47.3 million. This weaker performance was primarily attributed to the 6% Sales and Service Tax (SST) imposed on foreign patients since September 2025 and the adverse impact of a stronger Ringgit on patient volumes from Indonesia. The group notably absorbed the SST impact in IHFY26, which further weighed on overall profitability.

Further impacting earnings were pre-operational start-up costs associated with two new full-fledged IVF facilities opened in Sabah, Malaysia, and Manila, Philippines, in FY26. The company also has three new IVF centres planned for FY27 in Johor, Tuguegarao, and Jakarta. Consequently, the Profit After Tax (PAT) margin compressed by 6.7 percentage points to 27.4%.

Operationally, Malaysia’s segment delivered robust revenue growth of 23.9% to RM90.9 million, driven by increased contributions from both local and foreign patients. In contrast, the Singapore operation experienced a sharp decline, with revenue falling 39.6% to RM7.8 million following the departure of a key doctor in October 2024.

Future Outlook and Recommendation

Despite the near-term challenges, the investment bank maintains a “BUY” recommendation, underpinned by the company’s strategic expansion plans. The group recently launched two new IVF centres in December 2025 — one in Kota Kinabalu, Sabah, and another in Quezon City, Philippines. These new centres are expected to progressively ramp up operations and contribute meaningfully to earnings from FY27 as patient volumes increase. The Kota Kinabalu facility is projected to achieve profitability by 4QFY26.

The Manila centre represents a strategic move into one of Southeast Asia’s fastest-growing fertility markets, offering access to a catchment area of over 20 million people. Additionally, the Singapore operation is expected to see a gradual recovery as newly recruited fertility specialists build their patient bases.

While earnings projections for FY26-28 have been revised downwards due to lower sales and higher administrative expenses, the long-term growth trajectory from these expansion initiatives remains compelling. TA Securities has set a Target Price of RM0.25, representing a 25.0% upside from the last traded price of RM0.20, reiterating its positive outlook for the company’s future growth.