UG Healthcare - RHB Invest 2020-11-06: The Best Quarter Is Yet To Come; Stay BUY


UG Healthcare - The Best Quarter Is Yet To Come; Stay BUY

  • UG Healthcare's 1QFY21 earnings beat expectations due to better-than-expected ASP achieved.
  • UG Healthcare’s expansion plan remains intact as we expect its capacity to grow by 17% to 3.4bn pieces pa (ppa) by end-Mar 2021.
  • Maintain BUY with higher target price of S$1.39 from S$0.11, 42% upside and 2% yield.
  • Our target price is based on 8.7x CY21F P/E, which is at a 50% discount against sector peers. The discount is justified due to lower market cap/liquidity.

UG Healthcare's 1QFY21 earnings beat expectations.

  • UG Healthcare (SGX:8K7)'s 1QFY21 core net profit of S$22.7m makes up 36% of consensus and 329% of our full-year FY21 earnings forecast. The outperformance is caused by higher-than-expected ASP and sales volume. We believe that 2QFY21 will be better q-o-q as the gloves shortage remains acute, hence driving up ASP.

Turned to net cash position.

  • UG Healthcare’s cash has increased to S$24.1m as of end-September (from S$9.3m as of end-June). As the total debt has declined to S$21.1m (from S$35.1m), UG Healthcare has turned to net cash of S$3.0m.

Completed placement and 1-to-3 share split.

  • On 27 Aug 2020, UG Healthcare completed the placement of 7.5m shares at S$2.545 (pre-bonus issue). Subsequently on 2 Oct 2020, it completed its share split of 1-to-3. After the completion of both placement and stock split, the latest number of shares is now 615m.

Expansion plan intact.

  • From the current capacity of 2.9bn ppa, UG Healthcare plans to increase its capacity by 500m ppa to 3.4bn ppa by end-Mar 2021. This is more aggressive than its original plan of expansion by 300m ppa to 3.2bn ppa.
  • On top of that, UG Healthcare has started construction of a new production facility on the newly acquired land which will add another 1.2bn ppa of capacity to 4.6bn ppa by end-Jun 2021.

Earnings estimates increased.

  • We have increased UG Healthcare's FY21-23F core earnings forecast by 244-1,599% due to higher ASP assumptions. Note that our FY21-23F blended ASP assumptions of USD70.00, USD55.00 and USD45.00 have already assumed ASP decline in the future once the COVID-19 pandemic ends.

BUY UG Healthcare with a higher target price of S$1.39 from S$0.11.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-06
SGX Stock Analyst Report BUY MAINTAIN BUY 1.39 UP 0.11