UG Healthcare 2HFY20 Preview - CGS-CIMB Research 2020-07-30: Just Getting Started


UG Healthcare 2HFY20 Preview - Just Getting Started

  • We reiterate our positive view on UG Healthcare with the prospect of higher-than-expected ASPs in light of strong glove demand.
  • We forecast UG Healthcare to report an 11.9x h-o-h jump in net profit for 2HFY20F, and expect an even better showing in FY21F.
  • Despite the recent rally, we believe UG Healthcare’s valuation remains attractive at 12.9x CY21F P/E.
  • Reiterate ADD with a higher Target Price of S$3.00.

UG Healthcare's 2HFY20 preview: 11.9x sequential jump in net profit

  • UG Healthcare (SGX:41A) is set to release financial results on 11 Aug; we estimate a net profit of S$10.1m for 2HFY20 (Jan 2020 to June 2020), an 11.9x jump on a h-o-h basis. This was likely driven by:
    1. higher ASPs,
    2. higher sales volume, and
    3. cost savings from internal efficiency enhancements and better economies of scale.
  • However, we believe that 2HFY20 did not capture the full impact of Covid-19 as glove makers only started to hike ASPs in late-Apr/early-May 20. We believe UG Healthcare can achieve an even better showing in FY21F.

ASPs could increase by more than initially expected

  • Our recent channel checks suggest that industry players have hiked their average selling prices at a faster pace in 3QCY20.
  • We gather that Top Glove (SGX:BVA)’s ASPs are slated to rise by 25% m-o-m in Aug 20, and it is confident of raising ASPs further by at least 5% m-o-m until end-CY20F. (see also report: Top Glove Corporation - CGS-CIMB Research 2020-07-22: The Show To Go On)
  • Kossan also shared that it expects ASPs to rise by 20% in Jul 20 (vs. 2QCY20) and another 20% m-o-m in Aug 20. We believe this reflects the urgent demand for gloves, as daily new cases of Covid-19 worldwide continue to be on an uptrend.
  • We conservatively impute +25%/+3% q-o-q ASP growth for UG Healthcare in 1Q/2QFY21F respectively; this raises our FY21-22F EPS by 38.2%-42.8%. Our forecasted EBITDA margins for 2HFY20F/FY21F stand at 19.0%/34.4%, at the lower end of our forecasts for the glove makers under our coverage.

Reiterate ADD, with a higher Target Price of S$3.00

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-30
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