We came away from UMC’s recent briefing feeling positive on its outlook, as the Group is seeing healthy demand for both its distribution and self-manufactured products, coupled with the commercialisation of AirdroX that has generated RM0.36m worth of revenue in merely a month. While we continue to like UMC for rosy earnings outlook, we are maintaining our HOLD rating on UMC, as we believe the positives have been pretty much priced in at current levels (share price +161% since its debut). TP is also unchanged at RM0.81, based on a PE multiple of 21.6x on its FY24f EPS of 3.7sen. Our valuation is a 10% premium to its peer average of 19.6x, but we deem the premium justifiable, considering UMC’s stronger earnings growth.

We attended UMediC’s (UMC) 4Q22 results briefing and came away with the following key takeaways.

Seeing healthy demand. UMC’s current orderbook stands at c.RM10m, evenly split between both manufacturing segment and distribution and marketing segment. UMC has indicated that there has been an increase in demand for automated external defibrillator (AED) after the government made it mandatory for all public facilities to have an AED installed on-site. We note that UMC has a market share of c.30% for its distribution business (limited to the existing category of medical devices that UMC supplies), hence this new requirement by the government will undoubtedly benefit UMC, in our view. We reckon that there is still room for market share growth as certain products under UMC’s portfolio is still relatively new.

Commercialisation of AirdroX. UMC has recently commercialised its second own brand product, which is the AirdroX spacer, in end-June. Within a month since its commercialisation, the AirdroX spacer has generated RM0.36m worth of revenue in 4Q22, with an estimated sales volume of c.30k units. We gather that the ASP for AirdroX spacer is c.RM30 per unit and UMC is currently supplying the spacer to both hospitals and local pharmacies. Given the different approach applied for the production of AirdroX spacer (manufacturing of components outsourced to third party contract manufacturers while assembly is done in-house), we believe it would be relatively easier to ramp up the production of AirdroX.

Venturing into something new. UMC is currently exploring to venture into laboratory supply business, which includes supplying both laboratory equipment and consumables. For starters, UMC will focus on distributing laboratory equipment for prospective principals, then later venture into the manufacturing of water-based and chemical-based consumables, which would provide a recurring stream of income to the Group. We understand that UMC has initiated discussion with targeted principals and is currently in the due diligence stage. Management also does not expect this new venture to require heavy capex, as UMC can leverage on its existing facilities for the manufacturing of lab consumables.

Forecasts. Unchanged.

Maintain HOLD, with TP of RM0.81. While we continue to like UMC for its anticipated strong earnings growth, we are maintaining our HOLD rating on UMC as we believe that the positives have been largely priced in at current levels (share price +161% since its debut on 26 July). TP is also unchanged at RM0.81, based on a PE multiple of 21.6x on its FY24f EPS of 3.7sen. Our valuation is a 10% premium to its peer average of 19.6x, but we deem the premium justifiable, considering UMC’s stronger earnings growth (UMC’s 2-year CAGR of 30%, vs peers’ average of 8.6% growth).

Source: Hong Leong Investment Bank Research - 15 Sept 2022