UG HEALTHCARE CORPORATION LTD
41A.SI
UG Healthcare (UGHC SP) - Business Remains Solid
Price down 35% in 2 days, but business remains solid
- UG Healthcare’s stock price has fallen 35% in the past 2 days on massive volume.
- In response to that, we hosted a conference call with management, Mr Lee Jun Yih, Executive Director and our institutional clients.
- Management assured that the company remains in good shape and addressed concerns on the operations.
Production on target, stable pricing and margin
- On the production front, things are moving according to plan.
- UG started its phase 2 expansion production in Oct 2015 and all the new lines are operational, at optimum utilisation rate of 80-85%. Capacity will reach 1.9b gloves in FY6/16, up from 1.5b in FY6/15.
- Management also plans to share more details on its future plan, following its 1H16 results next week.
- Further, there is no significant pressure on pricing and margins.
- Raw material costs are stable and currency movements are positive for UG.
- On fixed costs, management does not expect a significant increase in marketing and administrative costs, with only a small SGD0.2-0.3m increase for recurring listing expense.
- UG was only listed in 1HCY15.
Results preview: potential upside surprise
- 1H6/16 results will be released on 3 Feb, next Wednesday after market.
- 1H growth should be lower than the full year, at 5-10%, as there was no recurring listing expenses in 1H6/15 and the new capacity only contributed for 2 months.
- 2H6/16 should catch up with YoY growth of 80- 90%.
- Inferring from the strong USD and low rubber and oil prices, there could be upside surprise to earnings. We have seen other glovemakers benefiting from these.
- We expect 38% earnings growth YoY in the full year.
Attractive valuation & growth; BUY for 46% upside
- At SGD0.28, the stock is now lower than when we initiated in Oct 2015, trading at just 13x/10x FY15/16E P/E.
- Its peers, which are all larger, have continued to rerate and are trading at 16-35x forward P/E.
- Maintain BUY at TP of SGD0.41, based on 14x FY16 P/E, 40% discount to peer average for its smaller size; the discount has increased from 30% after the sector’s positive rerating.
John Cheong CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-01-26
Maybank Kim Eng
SGX Stock
Analyst Report
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0.41