UG HEALTHCARE CORPORATION LTD
41A.SI
UG Healthcare (UGHC SP) - New capacity cushioned weaker ASP; D/G to HOLD
Results in line; Higher volume offset weaker ASP
- FY16 was in line with our expectation; core earnings grew 37% YoY due to increase in production volume. However, 2H16 core earnings fell 31% HoH due to lower ASP and gross margin from more competition.
- Management said ASP and gross margin have bottomed and performance should improve, driven by capacity expansion. Expansion will lift FY17 capacity by 26%.
- We cut FY17-18F EPS by 17-21% after reducing our ASP.
- Our TP is reduced to SGD0.37 from SGD0.52. Downgrade to HOLD for lacklustre growth.
Higher volume & associate contributions
- The bulk of the earnings growth was driven by around 20% increase in production volume and 35% increase in associate contributions.
- To recap, UG increased its production capacity by 27% in FY16. However, revenue grew only 6% YoY as ASP fell c.10%.
Capacity expansion on track & healthy orders
- New capacity of 500m gloves per annum should commence production progressively by Nov 2016 and this will lift UG’s capacity by another 26% in FY17. Also, management is confident to fill up orders for its new capacity, leveraging on its robust internal distribution channel.
- UG is developing an existing plot of land beside the current manufacturing facility. This could increase production capacity by another 1b gloves or 42%, from 2.4b in FY17.
Expect slower growth; downgrade to HOLD
- To reflect a more competitive and less favourable environment, we cut FY17-18F EPS by 17-21% after reducing ASP assumption. As a result, our TP is reduced to SGD0.37, pegged to 12x FY17F EPS, based on 30% discount to peers’ target under our coverage. This is to incorporate UG’s smaller size and shorter track record.
- We expect FY17F EPS to grow by only 5%.
John Cheong CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-08-25
Maybank Kim Eng
SGX Stock
Analyst Report
0.37
Down
0.520
