UMediC Group Bhd (UMC) is a fast-growing distributor of medical equipment and consumables manufacturer, backed by solid prospective earning growth over the next two years.
Rakuten Trade, in its Investment Idea note suggests BUY with a TP of 90 sen based on 25 times PER over FY24 EPS of 3.6 sen, which is a considerable discount to its Bursa listed peers due to its smaller market capitalisation.
“As the Malaysian government allocated RM766 million for the procurement of medicines in Health Ministry hospitals, UMC has notable tender opportunities for its marketing and distribution (M&D) segment that offers attractive GP margin of 35% to 40%.
“Not to be left behind, UMC is expanding horizontally into laboratory equipment and laboratory consumables via the acquisition of Patho Solutions (M) Sdn Bhd, which allows it to cover four out of five main categories within the medical industry.
Rakuten Trade said even though contributions from Patho Solutions is currently minimal by comparison, it believes that UMC will leverage on its superior GP margins of 40% to grow its market share within the fast-growing medical equipment supplies industry.
“For the manufacturing segment, its current operation is based in a 8,300 sq ft production facility, which is 90% utilized,” it said.
It added that as part of its expansion, UMC has completed the construction of its new factory measuring 21,346sqft, which will effectively double its production capacity.
“Upon completion, the company will be able to launch its new products including nebuliser and sterile water for inhalation bag. It will also be able to increase the production capacity for some products and reduce the cost of productions by 20% cheaper than competitors’ products, for products such as HydroX prefilled humidifiers.
“(As such), UMC is confident a surge in import substitution demand to drive the new factory to full utilization by Q2CY24. As such, we estimate its manufacturing segment will deliver 33% and 23% of earnings growth in FY24/FY25 respectively.
It added that UMC has also recently announced an issuance of 24.93 million new shares to fulfill the Bumiputera Equity Condition.
“Post this exercise, its net cash holdings would increase by another RM17 million, assuming issuance price at 70 sen per share pushing total net cash to RM31.4 million thus enabling the company for greater expansion flexibility plus the opportunity for a transfer to the Main Board,” it added.
