PhillipCapital has initiated coverage on disposable glove manufacturer UG Healthcare with a “buy” call and a target price of $2.70.
The price is based on a price-to-earnings ratio (P/E ratio) of 15x for FY21e and represents a 40% historical discount to its peers in view of the company’s smaller scale and size, says PhillipCapital head of research Paul Chew in a July 28 report.
Since the Covid-19 outbreak, spot prices for gloves have ballooned five-fold. Order lead times have increased to a year from a month previously.
“With its own branded gloves and distribution network, UG Healthcare should be able to monetize a larger share of supply-chain profits, starting from manufacturing to distribution,” says Chew.
UG Healthcare, which was established in 1989 and listed on the SGX in 2014, makes and distributes gloves under its proprietary “Unigloves” brand to over 2,000 customers in 50 countries.
Its annual production capacity stands at some 2.9 billion gloves, with plans to expand to at least 3.2 billion by FY21e.
Beyond the surge in demand due to the Covid-19 outbreak, UG has been capturing margins for the entire supply chain, including branding, logistics, warehouses, and end-customer network.
Chew feels UG’s own-brand products will offer higher customer stickiness and selling prices.
“With a network that reaches out to end-customers directly, UG can benefit from higher end-selling prices of gloves and enjoy both manufacturing and distribution margins for its premium branded gloves,” he says.
Global demand for gloves doesn’t seem to be easing anytime soon, too. In fact, Chew predicts that the shortage should persist till 2021 due to penetration in emerging markets such as China and Brazil.
Chew has estimated PATMI for UG Healthcare to be at $11.3 million for FY20e, and $35.2 million in FY21e. He has also forecast earnings per share (EPS) for the stock to be at 5.8 cents in FY20e, and 17.9 cents for FY21e.
As at 4.57pm, shares in UG Healthcare are changing hands 63 cents higher, or 36% up at $2.38. UG Healthcare’s shares have surged 1,600% year-to-date.
