UG Healthcare - RHB Invest 2018-11-13: Gross Margin Widened From Production Efficiency

UG HEALTHCARE CORPORATION LTD (SGX:41A) | SGinvestors.io UG HEALTHCARE CORPORATION LTD (SGX:41A)

UG Healthcare - Gross Margin Widened From Production Efficiency

  • Maintain BUY with SGD0.32 Target Price, 49% upside plus 2% FY19F yield, pegged to 12x FY19F EPS.
  • We remain bullish on UG Healthcare after its results release, which saw net profit rising 21% y-o-y, and GPM widening 5.5ppts to 21.8%.
  • With Phase 1 of the new production facility adding 500m gloves pa capacity, UG Healthcare now has total capacity of 2.9bn gloves pa. Full commercialisation of Phase 1 by Dec 2018 should add further to earnings.



1QFY19 Earnings in line.


  • UG Healthcare's 1QFY19 (Jun) net profit of SGD1.04m was up 21% y-o-y – this represented 21% of our FY19F. We expect stronger earnings in subsequent quarters from higher production, and hence results are in line.
  • 1QFY19 revenue rose 11% y-o-y, mainly due to an increase in the volume of gloves produced and sold. This came from commencement of new production lines and higher sales through expansion of distribution networks.
  • Gross profit margin widened to 21.8% (from 1QFY18’s 16.3%) due to better production efficiency from the increase in manufacturing capacity. 1QFY19 gross profit rose 49% y-o-y. We have conservatively assumed FY19 gross profit margin of 18.5%, rising to 19.3% for FY20.
  • The new production facility saw a progressive rollout of Phase 1 (500m gloves pa capacity for Phase1), and this brought total production capacity to 2.9bn gloves pa. Current overall average utilisation is 70%. Full commercialisation of Phase1, taking into account production, distribution, marketing and sales, is expected by Dec 2018.
  • Management is considering a further increase in capacity by another 300m gloves pa at the new production facility. This could potentially raise overall capacity to 3.2bn gloves pa.


Maintain BUY

  • Maintain BUY with SGD8.88 Target Price, which is pegged to 88x FY88F EPS, a discount to the peer average of 88x – this factors in UG’s much smaller production output vs its peers, most of which are listed on Bursa Malaysia.
  • Key risks include higher gas and raw material prices, which could narrow margins.





Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 0.320 SAME 0.320



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