• MYR0.79 FV based on 20x CY25 P/E. To meet the strong demand for its prefilled humidifiers, UMediC is in the midst of doubling its manufacturing capacity (compared to a year ago) by end-2024, before almost doubling it again by 2QCY25. Earnings growth is also supported by its medical device distribution business, on the back of increasing spending in the healthcare industry, and its proactive procurement of niche and growing medical devices.

• Aggressive expansion in manufacturing capacity. UMC has completed the construction of its new factory building, increasing its manufacturing capacity from 300k bottles/month to 420k bottles/month in April. As demand continues to outpace its existing supply, UMC will gradually increase its manufacturing capacity to 600k bottles/month by end-2024, before almost doubling it to 1.1m bottles/month by 2QCY25. The group will also continue to launch new products to diversify and complement its existing businesses, with the launches of a digital humidifier monitoring sensor and a digital oxygen flowmeter in the pipeline.

• The growing healthcare industry. The group’s marketing and distribution segment focuses on high-value, critical medical devices. Malaysia’s mediumterm health expenditure growth is expected to be among the fastest in ASEAN (+8.3% CAGR), supported by both the private and public sectors. UMC will set up new showrooms in Kuala Lumpur and Johor by 2HCY25 to more easily showcase its products to prospective customers and tap into more business opportunities in the local market.

• Diversifying into new segments. UMC has been actively investing into new niche products to expand its offerings. The group acquired a 70% stake in Patho Solutions, an authorised distributor of various laboratory equipment, which are crucial to the growth in preventative care. The group also incorporated two new subsidiaries this year for the distribution of medical device mounting solutions and minimally invasive medical devices.

• Outlook. We expect UMC to record a 3-year earnings CAGR of 28%. Our MYR0.79 FV is derived from a CY25 P/E target of 20x, at a 40% discount to the KL Healthcare Index’s P/E of 33x. We think this is fair, given the group’s smaller market capitalisation.

• Key risks include a slower-than-expected increase in orders, and lower-thanexpected utilisation rates.

Source: RHB Securities Research - 30 Oct 2024