UG Healthcare: Maybank-KE initiates coverage on UG Healthcare, with a Buy rating and TP of $0.41, describing that the Malaysian glove-maker is undervalued.
The glove-maker had increased its capacity to 1.9b gloves p.a. in FY16, from 1.3b in FY14, or a 46% increase in capacity. Of this 0.2b commenced production in Feb, while the remaining 0.4b started in Oct ’15.
This will allow UG to meet customers’ overwhelming demand, which it has substituted with OEM products in the past.
FY15 earnings were hit by post-IPO and one-off marketing costs. From this lower base, Maybank-KE expects FY16/17 EPS to grow by 38%/45% y/y. There is still room for three more production lines in the existing factory, and four additional lines on a neighbouring site, which could lift capacity by another 1.5b/79%. The three lines should start contributing in FY17e.
UG also enjoys tailwinds like the resilience of the healthcare sector, strong growth potential from improved healthcare standards, and also the expectations for UG to benefit from the strengthening of the USD against the MYR and subdued raw material prices.
Meanwhile, unlike most other peers, UG sells its own “Unigloves” brand and it operates an established distribution platform that sells to over 50 countries.
Maybank-KE’s TP is premised on 14x FY16e P/E, a 30% discount to peer valuations of 20x, to account for smaller size and shorter listing track record.
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