UG Healthcare - CGS-CIMB Research 2020-07-08: Higher ASPs On The Cards

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

UG Healthcare - Higher ASPs On The Cards

  • We reiterate our positive view on UG Healthcare (SGX:41A) as we believe higher ASPs are on the cards given the surge in glove demand.
  • We now impute 20% ASP q-o-q growth for UG Healthcare’s OBM gloves in 4QFY6/20F and 1QFY21F into our model. Our FY20-22F EPS is lifted by 9.2%-57.2%.
  • Despite the recent rally, we believe UG Healthcare’s valuation remains attractive at 11.2x CY21F P/E.
  • Reiterate ADD with a higher Target Price of S$2.10.



Quantum of ASP hike likely to be higher than expected

  • Our recent channel checks suggest that Malaysian-based glove makers have hiked their average selling prices (ASPs) at a faster rate than our forecasts. For example, we gather that Supermax’s ASPs likely saw a c.35% q-o-q increase in the Apr-Jun 2020 quarter. We believe this reflects the urgent demand for gloves, as daily new cases of Covid-19 worldwide continue to be on an uptrend.
  • We now impute a 20% ASP growth q-o-q for UG Healthcare’s own brand manufacturing (OBM) gloves (which accounts for c.70% sales volume) in 4QFY6/20F and 1QFY21F into our model. We forecast UG Healthcare’s current ASPs to hold up till 1Q21, before a gradual normalisation of prices as higher industry supply kicks in.
  • Our FY20-22F EPS for UG Healthcare is lifted by 9.2%-57.2% mainly to account for higher ASPs.


Forecasting record-breaking 2HFY20F results

  • UG Healthcare is set to announce its 2HFY6/20F results by mid-Aug 2020. We expect UG Healthcare to record a sequentially stronger net profit of S$10.1m in 2HFY20F, a 11.9x jump on a hoh basis. This will be mainly driven by:
    1. higher ASPs,
    2. lower raw material prices, and
    3. cost savings from internal efficiency enhancements and better economies of scale.
  • Our forecasted EBITDA margins for 2HFY20F/FY21F stand at 19.0%/27.2%, at the lower-end of glove makers under our coverage.


Reiterate ADD, with a higher Target Price of S$2.10






ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-08
SGX Stock Analyst Report ADD MAINTAIN ADD 2.10 UP 1.360



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