SINGAPORE (May 14): RHB is reiterating its “buy” call on UG Healthcare with a target price of 32 cents.
This came on the back of the group announcing that its 3Q18 earnings increased by 16.7% to $1.1 million, while 9M18 earnings were 28.8% higher y-o-y at $3.01 million.
Revenue for the quarter was $19.4 million, 10.1% higher y-o-y, mainly due to increase in production and sales of gloves. This brought gross profit to $3.32 million, 1.0% higher than $3.28 million in 3Q17.
See: UG Healthcare posts 3Q earnings up 16.7% to $1.1 mil
The group’s management has also guided that 4Q18 would continue to benefit from the reconfiguration of its manufacturing facility, which contributed to its increase in 3Q18’s revenue and net profit.
In a Friday report, analyst Leng Seng Choon says, “Management expects the new 500 million annual glove capacity (to 2.9 billion units) to be fully taken up by Oct 2018. This would be via selling to its own downstream companies ie. the UG branded gloves.”
Furthermore, the management has indicated that the gross profit margin of 20-30% is achievable, but this will depend on its investment in marketing resources.
“For FY19, we are conservatively assuming a gross margin of 17%, given the initial start-up of the new 500 million annual glove capacity. There is therefore potential for earnings to be stronger than our expectations, if UG Healthcare’s execution surprises on the upside,” says Leng.
Consequently, the analyst has raised FY18 turnover and net profit forecasts by 6% to factor in the positives.
Currently, the stock is trading at 8.6 times FY19 earnings, which is sharply lower than the FY19 peer average of 25 times. The analyst believes that the group’s production growth strategy could bring its price-to-earnings ratio closer to its peer average.
As at 10.20am, shares in UG Healthcare are trading at 23 cents.
