Brokers’ digest

CGS-CIMB Research has initiated coverage on Malaysia-based, Singapore-listed glove manufacturer UG Healthcare Corporation (UGHC) with an “add” or “buy” call and target price of $1.36.

UG Healthcare has its own global downstream distribution network and distributes its proprietary “Unigloves” brand to over 50 countries.

In a June 23 report, analyst Ong Khang Chuen says he likes UG Healthcare’s undemanding valuation and own brand manufacturing (OBM) model, which allows for a higher average selling price (ASP) hike potential amid the strong glove demand during the Covid-19 outbreak.

In view of the surge in demand due to the pandemic, UG Healthcare has been able to raise its selling prices. “We estimate that UGHC was able to raise price hikes for its OBM (which accounts for around 70% of sales volume) gloves by 10% each month since February 2020,” Ong says.

“On the back of the strong ASP increases and higher sales volume, we forecast that UG Healthcare will see top line growth of 42.2%/29.5% y-o-y in FY2020F/2021F respectively,” he adds.

While the company’s net margin fell to 2.45.6% in FY2017 to FY2019 compared to 9.3% in FY2016 on the expansion of its downstream distribution platforms, its OBM business is expected to help lift profitability.

“(We) forecast UG Healthcare’s EBITDA margin expanding 6.8%/7.7% points y-o-y in FY2020F/2021F on the back of higher ASPs, lower raw material prices, and cost savings from internal efficiency enhancements and better economies of scale,” says Ong.

He also estimates that UG Healthcare’s net profit will jump nearly 11 times to $9.1 million for 2HFY2020, to hit a full year earnings quadruple that of the preceding year. —