Manufacturing segment is the star performer. The prefilled humidifiers, also known as HydroX, produced by UMC's manufacturing division have achieved great success and today command an 80–90% market share in Malaysia. Going ahead, we think that HydroX's overseas markets —where there is still significant space for market share growth— will represent the company's next sales upswing. We know that HydroX is priced 30–40% less than American competitors and has a halal certification, giving UMC a competitive advantage to win market share. Meanwhile, UMC is now exploring the possibilities of producing for other potential customers as they have received both OEM and ODM requests for prefilled humidifiers. This move could increase UMC's production output, resulting in lower production costs, and allow UMC to expand into new markets by tapping into potential customers' larger footprints.

Distribution segment: Riding on higher MOH allocation. In the Budget 2023, Ministry of Health (MOH) was granted an allocation of RM36.3bn, which represents a 12% YoY increase. With part of the allocation will be used to upgrade 26 existing hospitals and construct a new women and children’s block in Hospital Melaka, UMC is poised to benefit from increased demand for medical equipment.

Inorganic growth. UMC has previously stated that it intends to enter the lab-related business sector by acquiring an existing player. We understand that the target firm currently distributes both laboratory equipment and consumables, and there are less than 10 players in the market catering to this space at the moment. UMC will acquire a 70% stake in the target company (expected to complete in Apr 23) as it sees promising earnings potential in this new market (albeit negligible in early stages), as the lab related business is as large as the medical equipment segment.

New high on the card? Taking cue from the bullish technical indicators, UMC is set to re-challenge its 52-week high of RM0.90. A successful breakout above the said level will spur the price toward RM0.95-0.97-1.03. Cut lost at RM0.78.

Source: Hong Leong Investment Bank Research - 10 Mar 2023