By CIMB after 3Q results:

UGHC reported 3QFY6/22 net profit of S$10.7m (+0.3% qoq, -69% yoy), in line with our expectations, with 9M22 net profit making up 75% of our FY22 forecast. While ASPs continued to trend downwards, revenue rose 12% qoq in 3Q22 helped by higher sales volume of c.15% qoq during the quarter.

Thanks to its OBM business model, UGHC has been able to navigate challenges in the glove manufacturing industry, where ASPs have been on a decline for the past year due to intensified competition resulting from higher industry supply.

For the past three consecutive quarters, UGHC has achieved stable net profit of c.S$10m while peers&rsquo have been showing sequential declines.

Instead of competing directly on pricing, UGHC has been focusing on production of gloves with higher margins (i.e. niche/premium nitrile gloves, latex gloves), while outsourcing generic nitrile glove products (which is seeing stronger price competition) from other manufacturers.

Management notes that with FOB pricing falling to c.US$22-23 per carton, distribution margins are still stronger than prepandemic levels.

Commissioning of 1.2bn capacity to start in 4QFY22
UGHC&rsquo s new capacity will be commissioned gradually from May 22 onwards. However, labour shortage may be a constraint on the pace of production ramp, hence we cut our FY22F EPS forecast by 7.1% on lower volume assumption.

Nevertheless, we continue to believe that with a significantly expanded production scale and strengthened customer base in end-markets, UGHC can achieve much stronger financial performance compared to pre-Covid levels even as glove pricing fully normalises in the upcoming quarters...

CIMB TP 42c
DYODD as always.. Cheers

UG HEALTHCARE: Stronger performance expected compared to pre-Covid levels. Why?