UG Healthcare - Phillip Securities 2020-11-09: One Quarter Already Beat One Year


UG Healthcare - One Quarter Already Beat One Year

  • UG Healthcare (SGX:8K7)'s 1QFY21 revenue and earnings beat our forecasts by more than 40%. Higher selling prices bumped up revenue and margins. Quarter’s PATMI of S$22.7mn already higher than FY20.
  • Revenue surged 170% y-o-y to S$71mn: Europe +182% y-o-y, South America +237%.
  • Gross margins were a record 70%, higher than our forecast 43%.
  • We raise UG Healthcare's FY21e PATMI by 55% to S$84.3mn for higher ASPs, revenue and gross margins. Target Price is flat at S$1.35 vs S$1.33 previously, as we use more normalised earnings in FY22e as our basis. Target Price is now pegged at 14x PE, a 30% discount to larger glove peers vs 40% discount earlier. We believe this is warranted by an improved balance sheet, profitability, track record and expansion plans.


Higher ASPs propelled revenue.

  • UG Healthcare's 1QFY21 revenue increased 170% y-o-y to S$71mn. Volume growth was in the high teens. Higher selling prices was the main reason for the surge in revenue. Countries with the highest growth were Europe (Germany/UK), South America (Brazil) and Asia (China).

Blockbuster margins.

  • Gross margin was a record 70%. Higher selling prices were behind this. The price of nitrile input is rising but rising glove prices should be able to offset this. Raw materials are around 45% of production costs and 13% of sales. Even a 10% rise in nitrile prices will only shave 1.3% off gross margins, in our estimation.
  • UG Healthcare’s current 8-10% m-o-m hikes in ASPs should overwhelm increases in material costs.

Net cash.

  • On 21 August 2020, UG Healthcare completed the placement of 7.5mn new shares at S$2.545 per share. On 31 August 2020, UG Healthcare announced a share split of 1 existing ordinary share into 3 ordinary shares.
  • With better operating profits and cash flows plus net placement proceeds of S$18.4mn, UG Healthcare had net cash of S$3mn (Jun 2020: S$25.8m net debt).


Higher effective tax and other costs.

  • Effective tax in 1QFY21 was 28%, up from last year’s 15% and our 18% assumption. The jump was due to under-provisions in prior years. The other exceptional rise in expenses was a combined S$2.5mn for additional staff bonuses and forex losses.


Visibility for FY22e is limited.

  • Our FY22e forecasts for UG Healthcare conservatively factor in a steep 24% decline in ASPs and 26% point fall in gross margins. Growth is expected to be supported by a 52% jump in effective capacity.
  • Near term, we expect 2QFY21e earnings to rise q-o-q as glove selling prices are still rising.
  • UG Healthcare's production capacity will be expanded in two phases:
    • Phase 1: addition of 500mn pieces of gloves by end-Mar 2021 to 3.4bn pieces at a capex of RM20mn.
    • Phase 2: addition of 1.2bn pieces of gloves by end-Jun 2021 to 4.6bn pieces at a capex of RM60-65mn. This includes newly-acquired land close to UG Healthcare’s existing facilities.

Maintain BUY with higher target price of S$1.35, from S$1.33

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-11-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.35 UP 1.330