Expansion of production capacity to drive UMC earnings

PETALING JAYA: Potential increase in supply tenders for medical equipment procurement, the commercialisation of new products as well as the expansion of production capacity are expected to drive earnings growth at UMediC Group Bhd (UMC).

Hong Leong Investment Bank (HLIB) Research said due to the change in government, the medical device maker saw delays in public sector medical equipment orders in the first half of financial year 2023 (1H23).

“Typically, UMC will see stronger medical equipment sales to the public sector in the second half of the calendar year (equivalent to its first half financial year) as the Health Ministry utilises the budget allocated for the year to procure medical equipment,” the research house said in a report.

HLIB Research expects there to be an increase in the opening of tenders for medical equipment procurement in July and August.

“This is to ensure timely delivery of the equipment by December this year since the standard tender process takes four months from initiation to completion. We are upbeat on the distribution segment’s performance in 1H24, driven by the anticipated influx of public sector orders,” the research house said.

UMC is also planning to commercialise two new products – the prefilled nebuliser and sterile water bag for inhalation – by the end of the year.

“We note the CE certification audit process for the prefilled nebulisers has been completed and UMC targets to commercialise the product once certification is received,” HLIB Research said.

The research house projects the prefilled nebuliser to contribute meaningfully to the group starting from 2024. The sterile water bag for inhalation is presently undergoing product testing and validation, with plans for commercialisation after the launch of the prefilled nebuliser.

“While pricing details for both products are still pending, our understanding is that they will be priced higher than UMC’s existing product – the HydroX prefilled humidifier. Not to mention UMC has also received enquiries from interested parties regarding both products,” HLIB Research said.

UMC is constructing a new facility adjacent to its existing office and plant to expand its production floor space to meet the stronger demand for its in-house manufactured products.

“Expansions are underway, with the construction of the plant targeted to be ready by September this year. We expect the plant to be ready operationally by the end of 2023 as the testing and commissioning of machineries are ongoing concurrently with the construction.

“The expansion is expected to add 21,000 sq ft to the total floor space (current total floor space: 28.6k sq ft), with a significant portion allocated for manufacturing,” HLIB Research said.