SINGAPORE (June 24): CGS-CIMB Research has initiated coverage on Malaysia-based, Singapore-listed glove manufacturer UG Healthcare Corporation 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 Tuesday 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 pandemic.

Ong estimates that UG Healthcare’s net profit will quadruple in FY20F.

“We forecast UG Healthcare recording [a] 298%/105% y-o-y growth in net profit to $10m/ $20.5m respectively for FY20F/21F,” he says.

“Our forecast implies a $9.1m net profit for 2HFY20F, a 10.8x jump on a h-o-h basis,” he adds.

In view of the surge in demand due to the Covid-19 outbreak, 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 Feb 2020,” Ong says.

“On the back of the strong ASP increases and higher sales volume, we forecast that UG Healthcare will see topline growth of 42.2%/29.5% y-o-y in FY20F/21F respectively,” he adds.

While the company’s net margin fell to 2.4-5.6% in FY17-19 compared to 9.3% in FY16, on the expansion of its downstream distribution platforms, its OBM business is expected to see returns.

“[We] forecast UG Healthcare’s EBITDA margin expanding 6.8%/7.7% pts y-o-y in FY20F/21F on the back of higher ASPs, lower raw material prices, and cost savings from internal efficiency enhancements and better economies of scale,” says Ong.

As at 11.51am, UG Healthcare's share price surged some 650% year-to-date, to $1.05.