• UG Healthcare (SGX:8K7) reported an FY21 (Jul 2020 to Jun 2021) net profit of S$118.8m (+786% y-o-y), in line with expectations.
• Glove ASPs have been declining since Mar; UG Healthcare could be more resilient given its:
  1. product mix, and
  2. downstream presence in emerging markets.
• Reiterate ADD on UG Healthcare with a lower target price as we switch to P/E valuation methodology. Valuation is undemanding at 6.1x CY22F P/E, supported by net cash of S$49.8m (15% of market cap).

UG Healthcare Reported a Solid Set of FY21 Results

• UG Healthcare announced a 4QFY21 (April 2021 to June 2021) net profit of S$29.5m (-14% q-o-q, +147% y-o-y). We understand that the q-o-q lower revenue was mainly due to lower volumes, as end-customers turned more cautious on procurement in view of the ASP downtrend. FY21 net profit came in at S$118.8m, an 8.9-fold increase y-o-y, in line at 102.5% of our FY21F forecast.
• A total of S$0.00611 dividend per UG Healthcare share was declared for FY21, bringing its full-year dividend yield to 1.1%, as UG Healthcare looks to preserve cash for organic expansion.

Glove ASPs on a Downtrend, But UG Healthcare Could be More Resilient

• Glove ASPs peaked in Mar, in our view; we estimate 1QFY22F ASPs to fall ~30% q-o-q. Current ASP weakness mainly given its:
  1. diverse product mix (latex gloves, 43.5% of UG Healthcare’s revenue in FY21, are seeing less pricing competition vs nitrile gloves currently), and
  2. strong downstream distribution network, especially in emerging markets (Africa, South America), where international peers are less entrenched.

Returning to Full Production Capacity

• A temporary manufacturing facility shutdown due to UG Healthcare has achieved more than 90% full-vaccination rate of its workers in its manufacturing facilities, and hence should be able to return to optimal utilisation rate of its plants in the next two weeks.

Reiterate ADD on UG Healthcare With Lower Target Price

• Reiterate ADD rating on UG Healthcare. We switch to a P/E valuation methodology to account for near-term risks with net cash of S$49.8m (15% of market cap).

• Re-rating catalysts: stronger-than-expected demand for gloves; downside risks: steeper glove pricing decline.

Source: CGS-CIMB Research - 30 Aug 2021