UG Healthcare Corp - DBS Research 2016-07-04: Execution is key

UG Healthcare Corp - DBS Research 2016-07-04: Execution is key UG HEALTHCARE CORPORATION LTD 41A.SI 

UG Healthcare Corp - Execution is key

  • Established Malaysian glove manufacturer with plans to grow its global distribution network
  • Potential beneficiary of a greater shift in pricing and bargaining power to distributors as competition is expected to heat up ahead
  • Further prospects ultimately a factor of the Group’s ability to bring plans to fruition



The Business


Malaysia-based glove manufacturer with extensive global distribution platform. 

  • On top of its disposable examination glove manufacturing business, UG Healthcare, unlike most peers, is further integrated downstream with a global distribution network, which allows the Group to retain full control over its entire supply chain.

As competition heats up, UG Healthcare’s edge lies in the ownership of an international distribution business, which could be increasingly valuable for ASP and margin preservation ahead. 

  • As the industry collectively ramps up on the construction of new capacities to ride the demand in healthcare gloves, third-party distributors (counter-parties to glove manufacturers) have been taking the opportunity to reduce ASPs (average selling prices).
  • The Group sells close to 50% of its manufactured products via its own distribution network – where it also markets gloves procured from manufacturers such as Top Glove
  • With competition expected to heat up ahead, we believe that the ownership of an international distribution network could be increasingly valuable for the Group, as it should allow UG Healthcare to command superior ASP and margin preservation relative to pure-manufacturing peers.

But prospects for the Group ultimately boil down to the execution and delivery of longer-term plans. 

  • While the longer-term plans and objectives (i.e. capacity expansion, extension of distribution network, and development of higher-margin products) of the Group could pave the way for multifaceted growth opportunities beyond FY17F, much of it is still on the drawing board, and management’s ability to bring these plans to fruition in a timely manner still remains to be seen.


The Stock

  • Fair value of S$0.33 based on 16x FY17F PE. 
  • Larger peers are trading at an average of 18x blended CY16/17F earnings currently, but given its smaller scale, we believe that UG Healthcare should be valued at 16x FY17F PE, close to its average valuation since listing in December 2014.




Return *: 2
Risk: Moderate
Potential Target * : 12-Month S$ 0.33



Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-04
DBS Vickers SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 0.33 Same 0.33

*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSV’s coverage universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage universe and is explained further on the back page of this report.



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