Financial Highlights

The following table sets out a summary of the combined financial information of the Group for the FYE Under Review.

• Revenue growth from FYE 2019 to FYE 2021 and break a new high with RM 34 million.
• The gross profit margin is around 36.82% on FYE 2021 which also breaks a new high in GP margin.
• PAT margin increase from 8.03% (FYE 2019) to 14.91% (FYE2021).
• The gearing ratio is 1.69 times (FYE 2021) which is in a dangerous range. (A good gearing ratio should be between 0.25 – 0.5). The management mentioned the increase in gearing ratio was mainly attributable to the increase in bank borrowings for the acquisition of the Batu Kawan Land and its construction as well as for the working capital purpose.

Major customer and Supplier

Major Customers

The Group’s top 5 major customers for FYE 2021

According to the details, the top 5 customers are around 35.26%. The management disclosed that they have more than 400 customers. Therefore, they are not dependent on major customers due to the large customer base that they have acquired throughout the years.

Major Suppliers

The Group’s top 5 major suppliers for FYE 2021

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According to the details, the top 5 suppliers are around 86.13%. The top 2 suppliers are over 65% of the purchase. This shows that the company has strong bargaining power over the price. However, it might also cause them high switching costs when they would like to change the supplier. For this scenario, the management mentioned they do not dependent on any single supplier/principal so we believe that the company prepared a backup plan to avoid any unexpected risks of switching the supplier

Industry Overview

According to Protégé Associates’ research, the market size of the medical device industry in Malaysia was estimated at RM12.11 billion in 2021, increasing by 20.0% from RM10.09 billion in 2020 due to strong demand from the healthcare industry as a result of the COVID-19 pandemic. Going forward, the industry is expected to continue growing as a result of the demand from the healthcare industry along with support from the Government and continued domestic and foreign investments.

The medical device industry in Malaysia is expected to be driven by the ongoing COVID-19 pandemic and the resulting demand for healthcare services, especially in the short term. Demand for medical devices is also anticipated to come from the increased need for healthcare services as a result of population growth and an ageing population, more people seeking medical care, and the increasing incidence of NCDs in the Malaysian population. In addition, Malaysia’s borders have since reopened beginning on 1 April 2022 and it is expected that healthcare tourism will return, which will lead to a demand for healthcare services and as such, the need for more medical devices.

On the supply side, the industry is likely to receive continued support from the Government through various incentives and tax allowances. The Government is also working together with the AMMI to ensure that Malaysia will continue to produce skilled and knowledgeable employees in the medical device industry. The AMMI is an association representing leading medical device manufacturing companies in the medical technology industry in Malaysia that seeks to promote and strengthen manufacturing and services operational excellence in Malaysia through various strategic pillars which include talent development. The HRDC, an entity under the purview of the Ministry of Human Resources, Malaysia, has collaborated with the AMMI to develop medtech certification programs to raise the skills and knowledge of local employees. Additionally, the upgrading of existing and establishment of new healthcare facilities that will require medical devices will help to drive the industry during the forecast period from 2022 to 2026. The industry will also be supported by domestic as well as foreign medical devices companies who continue to build new factories or expand their existing factories in Malaysia. Protégé Associates has forecasted the medical device industry in Malaysia to grow at a CAGR of 12.1% from RM12.11 billion in 2021 to RM21.41 billion in 2026.

Source: Protégé Associate

Business strategies and prospects for UMEDIC GROUP BERHAD

The future plans and business strategies are as follows:

1. Construction of a new factory building.
2. Strengthening the domestic presence and reach
3. Development and commercialization of new products
4. Expanding the product portfolio through the development of current and new brand distribution business

MQ Trader View

Opportunities

1. Strong Financial Statement. The company's revenue growth is at a new high and the gross profit margin is around 38% and the net profit margin is 15%.
2. Diversification of customer base. The company has over 400 customer base, therefore it will not involve in a high concentration of customer risk.

Risk

1. Sustainability of the financial result for FYE2021. In FYE2021, the demand of Ventilator increased tremendously due to the pandemic. The revenue contributed through ventilators went up from RM 1.7 million (FYE 2020) to RM 10 million (FYE 2021). Ventilator’s revenue increased a whopping 585.93% from FYE 2020 to FYE 2021.
2. The sales of the ventilators alone contributed ⅓ of the total group revenue for FYE 2021. While the majority of the world’s populations are getting vaccinated, the people that contracted COVID-19 shall be less severe, reducing the reliance and demand on ventilators. Will the demand for ventilators be as strong as FYE2021 and sustainable to cover ⅓ of the company’s revenue?
3. High debt company. The company gearing ratio is 1.67 and the healthy range should be between 0.25 - 0.5. We have also noticed the company has negative cash flow from operating activities on FYE 2020 where the management explained it was a prepayment for the purchase of machinery (a one-off event). It’s important to take note of the cash flow statement for future QR results.

Note: Ventilators is a machine to assist or replace spontaneous breathing by getting oxygen into the lungs and removing carbon dioxide from the body to help patients breathe easier.

Click here to refer back on the IPO - UMediC Group Berhad (Part 1)

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