• UMediC’s 1QFY25 core net profit of RM1.6m (-48% QoQ, -11% YoY) was below ours and consensus estimates

• The weaker-than-expected results were due higher-than-expected administrative and other expenses

• Cut our FY25-27E earnings by 8-16% to reflect the higher costs. Maintain BUY and lower our target price to RM0.78 (from RM0.85) after rolling forward our valuation

Result below expectations

Stripping off RM0.3m forex gains, 1QFY25 core net profit of RM1.6m (-11% YoY) was below expectations, accounting for 12% of both ours and consensus full-year forecasts. The deviation was attributable to higher-than-expected administrative and other expenses, which is due to realised forex loss and higher staff costs. UMediC has increased its headcount by c.10-15% in tandem with expanded capacity from 7.2m bottles to 13.2m bottles per annum. 1QFY25 revenue of RM13m (-10% YoY) was dragged by the lower marketing and distribution segment (-17% YoY) due to lower demand for medical devices from both public and private healthcare service provider, but cushioned by higher manufacturing business (+5% YoY). EBITDA margin decrease marginally by 0.1ppt YoY at 21%.

Expecting stronger sequential earnings driven by manufacturing segment

Sequentially, 1QFY25 revenue declined 12% QoQ, attributable to weaker marketing and distribution segment of RM8m (-20% QoQ), while the manufacturing segment recorded a revenue of RM4.6m (+8% QoQ). EBITDA margin contracted by 8ppts QoQ at 21%. As a result, core net profit dropped 48% QoQ to RM1.6m. Moving forward, we expect stronger sequential earnings to be driven by increased capacity at its manufacturing segments, and improved marketing and distribution segment.

Maintain BUY with RM0.78 target price (from RM0.85)

We cut our FY25-27E earnings forecast by 8-16% to account for slower-than-expected sales from the distribution segment coupled with lower margin expectation. Our TP is revised down to RM0.78 (from RM0.85), based on a lower target PE of 21x (-1SD its PE since listing), from 25x mean previously, to reflect the weaker-than-anticipated growth momentum and as we roll over our valuation base year to FY26E. Downside risks to our call include a potential slowdown in medical equipment demand, operational disruptions, and the loss of licenses.

Source: Philip Capital Research - 5 Dec 2024