UMC reported 4Q22 core net profit of RM1.3m (-15.1% QoQ, NA YoY), bringing FY22 full year core net profit to a sum of RM8.3m (+29.5% YoY). The results came in within our expectations, forming 98% of our full-year forecast. We make no changes to our forecasts as results were in line, but we raise our TP to RM0.81 (from RM0.61 previously) as we rollover our valuation base year to FY24. Our TP represents a PE multiple of 21.6x (from 18x previously), which is at a 10% premium to its peer average of 19.6x. We believe the premium is justified by the anticipated stronger earnings growth of UMC. Given its excellent performance since its debut (share price +175%), we believe the positives have been largely priced in at current levels, hence we downgrade our rating on UMC to HOLD.

Within expectations. UMediC (UMC) reported a 4Q22 core net profit of RM1.3m (- 15.1% QoQ, NA YoY), bringing FY22 full year core net profit to a sum of RM8.3m (+29.5% YoY). The results came in within our expectations, forming 98% of our FY22 full-year forecast. The core net profit was arrived at after adding back EIs amounting to RM1.9m, which mainly consists of one-off listing expenses.

QoQ. UMC’s 2Q22 revenue recorded a 14.5% growth, mainly due to better showing in its manufacturing segment (+34.3%), while its marketing and distribution segment saw a marginal growth of 2.5%. The encouraging growth in its manufacturing segment was due to stronger sales of its HydroX series prefilled humidifier, coupled with a more favourable exchange rate for overseas sales. Despite stronger topline, core net profit saw a 15.1% decline, on the back of higher administrative and other expenses.

YoY. Not available as UMC was only listed in July 2022.

YTD. Revenue increased by 48.7% as both segments reported stronger contribution. UMC’s manufacturing segment saw a 72.7% increase in revenue, while its marketing and distribution segment reported a 43.8% growth in revenue. The improvement in revenue was achieved on the back of (i) higher demand for medical devices and consumables, as well as (ii) stronger HydroX prefilled humidifier sales. Core net profit grew at a smaller magnitude of 29.5% as the stronger topline was partially offset by higher costs (marketing expenses and administrative and other expenses).

Outlook. We believe UMC will continue to record stronger profits annually in the coming years, owing to (i) stronger contribution from both manufacturing and marketing and distribution segment, (ii) huge room for market share improvement as UMC accounts for a mere 0.2% share of the total medical device industry in Malaysia, and (iii) new own-branded products in the pipeline that could yield better margins.

Forecast. Unchanged.

Lift TP to RM0.81 but downgrade to HOLD. While we make no changes to our earnings forecasts, our TP is lifted to RM0.81 (from RM0.61 previously) as we rollover our valuation base year to FY24 from CY23. Our TP represents a PE multiple of 21.6x (from 18x previously) on its FY24f EPS of 3.7sen. Our valuation is a 10% premium to its peer average (consists of both local and international medical device manufacturers and distributors) of 19.6x, and we deem the premium justifiable, as we believe this is being compensated by the anticipated stronger earnings growth (UMC’s 2-year CAGR of 30%, vs peers’ average of 8.6% growth). Since its debut on 26 July 2022, UMC’s share price has risen 175% (IPO price: RM0.32 per share). We downgrade our rating on UMC to HOLD (from Buy previously), as we view that the positives have been largely priced in at current levels.

Source: Hong Leong Investment Bank Research - 14 Sept 2022