UG Healthcare specialises in producing natural latex and nitrile examination gloves since 1989. With an expanding production capacity and extensive distribution network, it is poised to capitalise on the growing healthcare awareness and new health threats globally. The company has posted FY12-14 net profit CAGR of 31.1%. Management guided that FY6/15 results may be slightly impacted by one-off listing expenses, but earnings should rebound significantly in FY16 on the back of capacity expansion and favourable industry outlook. A MERs outbreak in the region is a potential short-term catalyst while key risks are increasing competition and rising costs of raw materials.
Overweight on rubber gloves sector
The rubber gloves sector outlook is still positive, supported by increasing healthcare spending, higher hygiene awareness and the sector’s resilience to economic downturns. Transparency Market Research estimates that the global disposable gloves market will see a 6.2% CAGR from 2013 to reach US$7.9bn in 2019.
Capacity expansion across the board
All five major glove manufacturers in Malaysia have announced plans to build more factories and install new lines to meet increasing demand globally. Likewise, UG Healthcare’s production capacity will surge from 1.3bn to 1.9bn pieces p.a. by Aug 15, with potential for further expansion. A 46.2% increase in volume could translate into double-digit growth in the bottomline.
However, a greater supply of both nitrile and rubber gloves is also likely to cause more intense competition and pricing pressure in the medium to long term. UG Healthcare’s closest competitor is Supermax Corp, in terms of product mix and distribution channels in emerging markets.
Complementary distribution platform
Unlike most glove makers, which cater mainly to OEMs, UG Healthcare has its own “Unigloves” brand and an established distribution platform that sells to over 50 countries. The US and Europe remain the largest importers of gloves worldwide, especially of nitrile gloves, while gloves demand in emerging markets has substantial growth potential. UG Healthcare stands to benefit as over 50% of its revenue stems from these developed regions and it aims to increase its market share in the developing markets. (Read Report)
Source : CIMB Research