UMedic has prospective earnings growth over the next two years

UMediC Group Bhd's manufacturing plant in Batu Kawan, Penang.

PETALING JAYA: Rakuten Trade Sdn Bhd has placed a “buy” call on medical device maker UMediC Group Bhd with a higher target price (TP) of 90 sen from 76 sen.

In a report, the research house said the fast growing distributor of medical equipment and manufacturer of medical consumables is backed by solid prospective earnings growth over the next two years.

“As the government has allocated RM766mil for the procurement of medicines in health ministry hospitals, UMedic is witnessing notable potential in tender opportunities for its marketing and distribution (M&D) segment that offers an attractive gross profit (GP) margin of 35% to 40%,” it said.

Rakuten Trade added that UMedic is expanding into laboratory equipment and laboratory consumables via the acquisition of Patho Solutions (M) Sdn Bhd, which will allow the company to cover four out of five main categories within the medical industry.

The research house is confident that UMedic would leverage on its superior GP margins of 40% to grow its market share within the medical equipment supplies industry.

Additionally, as part of its expansion into the manufacturing sector, UMedic has completed the construction of its new factory which would allow the group to double its capacity.

“UMediC will be able to launch its new products including a pre-filled humidifier with macro nebulisation system and sterile water for inhalation bags.

“The group will also be able to increase the production capacity of its HydroX series pre-filled humidifiers and AirDroX series inhaler spacers,” Rakuten Trade said.

Furthermore, the cost of production for products such as HydroX pre-filled humidifiers by UMedic is at least 20% cheaper than competitors imported products, so this has given the group a surge in confidence that import substitution demand to drive the new factory to full utilisation by the second quarter of 2024.

“As such, we think UMedic’s manufacturing segment will deliver 33% and 23% of earnings growth in FY24 and FY25 respectively in line with the ongoing expansion,” Rakuten Trade said.

Meanwhile, it viewed the announcement of UMedic’s issuance of 24.93 million new shares to fulfill the bumiputra equity condition positively.

“Post this exercise, UMedic’s net cash holdings would increase by another RM17mil (assuming the issuance price is at 70 sem per share) pushing total net cash to RM31.4mil thus enabling the group for greater expansion flexibility plus the opportunity for a transfer to the Main Market,” it added.

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