SINGAPORE (July 13): The hike in average selling prices (ASPs) of Malaysian-based glove makers makes UG Healthcare a counter to watch, notes CGS-CIMB analyst Ong Khang Chuen.
“UG Healthcare remains our preferred pick among the Singapore-listed rubber glove sector, due to its undemanding valuation (a c.60% discount to the Malaysia-listed glove sector average CY21F P/E of 29.3x),” he says in a July 8 note.Specifically, he believes the counter is able to a garner stronger average selling price (ASP) upside potential than its peers.
“We now impute a 20% ASP growth quarter-on-quarter for UGHC’s own brand manufacturing (OBM) gloves (which accounts for c.70% sales volume) in 4QFY6/20F and 1QFY21F into our model. We forecast UGHC’s current ASPs to hold up till 1Q21, before a gradual normalisation of prices as higher industry supply kicks in,” he elaborates.
The brokerage is hence reiterating its “add” or “buy” call on UG Healthcare, but at a revised target price of $2.10. This is up 74 cents or 54.4% from its previous $1.36 call.
Ong believes the higher target price will give the counter a 34.6% upside from its $1.56 close on July 8.
Meanwhile, he expects UG Healthcare to record a “sequentially stronger” net profit of $10.1 million in its 2HFY20F, a 11.9x jump from the previous year.
Aside from the lift from higher ASPs, Ong points to lower raw material prices, cost savings from internal efficiency enhancements and better economies of scale, for the improved earnings.
As at 11.11am, shares of UG Healthcare were up 11 cents or 5.58% to $2.08.
