UG Healthcare - RHB Invest 2019-03-11: Capacity Increase To Drive Volume Production

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

UG Healthcare - Capacity Increase To Drive Volume Production

  • Reiterate BUY with unchanged SGD0.32 Target Price, giving 56% upside.
  • Our Target Price is pegged to 10x FY20F EPS, which is at a discount to the peer average of 17.6x, factoring in UG HEALTHCARE CORPORATION LTD (SGX:41A)’s relatively smaller production output.
  • After clarifications with management, we remain bullish on UG Healthcare given its capacity expansion, which will drive volume production and earnings.



Increased volume production from Phase 1 of production capacity expansion.

  • For 2QFY19, UG Healthcare reported revenue expansion of 15% y-o-y. In Jan 2019, Phase 1 of production capacity expansion (500m gloves pa) went into full commercialisation, after initial production that started in Oct 2018.
  • With the latest expansion, total production capacity is now at 2.9bn gloves pa. We therefore expect 2HFY19 to record a sequential increase in the number of gloves produced.


2HFY19 earnings to recover from 2QFY19’s weakness.

  • Whilst UG Healthcare recorded 2QFY19 gross profit growth of 30% y-o-y, net profit fell 73% y-o-y, due to higher marketing and administrative expenses, and increased expenses from the expansion in production lines, which did not achieve optimal production levels in 2QFY19.
  • We expect 2HFY19 earnings to pick up on increased volume output.


UG to increase capacity further in FY20.

  • UG Healthcare is planning to increase production capacity by another 300m pieces pa at the new production facility sometime in FY20. Thereafter, total capacity will increase to 3.2bn pieces pa.


Maintain BUY

  • Maintain BUY with SGD0.32 Target Price, which is pegged to 10x FY20F EPS, a discount to the peer average forward P/E of 17.6x – this factors in UG Healthcare’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/ 2019-03-11
SGX Stock Analyst Report BUY MAINTAIN BUY 0.320 SAME 0.320



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