PETALING JAYA: UMediC Group Bhd’s foray into the lab-related business and sustained demand for medical devices and consumables are expected to drive its growth prospects in the upcoming quarters.
Hong Leong Investment Bank (HLIB) Research said the integrated healthcare supply chain group’s core net profit for the third quarter of financial year 2023 (3Q23) of RM1.7mil was below both its and consensus expectations, accounting for 58% and 63% full year forecasts respectively.
“The disappointment was due to lower contributions from both its marketing and distribution, as well as manufacturing segments.
The change in government (post the general election) had delayed some public sector orders in the first half of 2023 (1H23) and we had anticipated the orders to return in 2H23.
“Unfortunately, these expectations were not met as initially projected,” said the research house in a report yesterday.
HLIB Research said the weaker results were also due to customers’ request to delay order delivery.
UMediC’s registered a drop of 23.4% quarter-on-quarter in its revenue for 3Q23. This was a result of weaker showings in the group’s marketing and distribution (down by 24.6%) and manufacturing (down by 21.2%) segments during the quarter.
HLIB Research said seasonality was the attributable reason for the decline in UMediC’s marketing and distribution revenue for the quarter, as stronger medical device sales is generally seen in 2Q.
“Meanwhile, manufacturing revenue was affected by maintenance and upgrading works, as well as customers delaying order delivery.
“In line with the weaker turnover, core net profit registered a decline of 40.3% quarter-on-quarter,” the research house said.
UMediC’s revenue grew 48.1% year-on-year underpinned by strong revenue growth in both its marketing and distribution (up by 52.3%) and manufacturing (up by 41.2%) segments.
“The revenue growth was underpinned by stronger demand for medical devices and consumables, as well as increase in manufacturing capacity. That said, core net profit grew at a smaller magnitude of 12.4% as growing costs weighed down on profitability,” HLIB Research said.
HLIB Research noted UMediC’s foray into the lab-related business having completed the acquisition of Patho Solution’s (Patho) with a 70% stake, for a price of RM600,000. UMediC also subscribed an additional 700,000 shares for RM700,000 in Patho.
“Patho is presently involved in the distribution of lab equipment and consumables.
“While Patho is earnings accretive, we believe it would take time for operations to ramp up, hence we do not expect a significant earnings contribution just yet,” the research house said.
HLIB Research maintained a “buy” call on UMediC with a target price of RM1.03.