SINGAPORE (Mar 12): RHB is reiterating its “buy” call on UG Healthcare with a target price of 32 cents.
In a Monday report, analyst Leng Seng Choon says, “After clarifications with management, we remain bullish on UG given its capacity expansion, which will drive volume production and earnings.”
For 2Q19, UG Healthcare recorded earnings of $0.28 million, 73.1% lower than $1.04 million in 2Q18. This was despite a 15.1% y-o-y increase in revenue to $21.1 million, as well as a 74.7% increase in other income to $0.94 million.
The group’s drop in earnings was mainly due to higher marketing and administrative expenses, and increased expenses from the expansion in production lines, which did not achieve optimal production levels in 2Q19.
Nonetheless, the analyst expects the group’s 2H19 earnings to pick up on increased volume output.
In Jan 2019, Phase 1 of production capacity expansion (500 million gloves per annum) went into full commercialisation, after initial production that started in Oct 2018. With the latest expansion, total production capacity is now at 2.9 billion gloves per annum.
“We therefore expect 2H19 to record a sequential increase in the number of gloves produced,” says Leng.
Key risks include higher gas and raw material prices, which could narrow margins.
As at 12.30pm, shares in UG Healthcare are trading at 18 cents or 0.85 times FY19 book with a dividend yield of 1.5%.
