GLOVE manufacturer and distributor UG Healthcare : 8K7 +1.13% will diversify from its existing business to operate active retirement homes in Malaysia, as well as healthcare and wellness businesses.

 

In its bourse filing on Oct 14, UG Healthcare said that the company will leverage on established strategic players through a joint venture consortium which intends to begin building active retirement homes in Malaysia. 

 

These homes will be located 21 km south of Desaru Coast Ferry Terminal, a 90-minute ferry ride from Tanah Merah Ferry Terminal.

 

The venture will be done through the acquisition of 100 per cent of Indigo Teguh&rsquo s share capital for RM100 (S$30.29).

 

Indigo Teguh is a private limited investment holding company that has UG Healthcare&rsquo s chief executive and executive director Lee Keck Keong as its sole shareholder and director. The company was incorporated in Malaysia on Apr 20, 2022. 

 

The joint venture consortium will consist of Lumayan Sejati, Lumayan Active Life (LAL) and Indigo Teguh. 

 

The shares of the joint venture entity for the development and management of the active retirement home project will be split between LAL and Indigo Teguh, with the two holding companies 65 per cent and 35 per cent of shares respectively.

 

As for the joint venture entity for the development and management of the healthcare project, LAL, Indigo Teguh and Lee will hold 30 per cent, 55 per cent and 15 per cent of shares respectively. 

 

Syed Muhammad Bin Tun Syed Nasir is a common director and shareholder of both Lumayan and LAL. Other directors of Lumayan include Noor Saadah Binti Abdul Hamid and Mohd Zainudin Bin Mat Amin, while Khoo Lay Wah is the second director of LAL.

 

In addition, Indigo Teguh has agreed to provide RM33.3 million in funding to Lumayan Sejati to acquire certain pieces of freehold Malay reserved land to build the active retirement homes from Ascolte, a private limited company in Malaysia. Lumayan will pay a land purchase price of RM37 million. 

 

As the RM33.3 million funding represents 4.5 per cent of UG Healthcare&rsquo s latest audited net tangible assets as at Jun 30, 2022, shareholders&rsquo approval for the proposed acquisition of Indigo Teguh and the funding of the balance land purchase price is not required.

 

However, because the proposed new business differs substantially from the company&rsquo s existing business and could change the risk profile of the group, the proposed diversification will be put to a vote at an extraordinary general meeting which will be announced in due course, the company said. 

 

The group sees the proposed diversification as a way to generate additional and recurrent revenue streams, which could enhance shareholder value over the long term.

 

Furthermore, it believes that there is increasing demand for good retirement facilities, healthcare and wellness services as Asia&rsquo s population ages.

 

&ldquo Moreover, the active eldercare and healthcare industry is a comparatively stable market, largely independent of cyclical business and market fluctuations. 

 

&ldquo The diversification of the group into the proposed new business is therefore part of its strategy to minimise risks from such fluctuations,&rdquo the company said.

Glove maker UG Healthcare Corp' s net profit for H1 FY22 tumbled about 61 per cent year-on-year to S$21.2 million as a lower average selling price (ASP) and softer production volumes affected its performance.

 

Revenue was down around 26 per cent at S$117.3 million due to the lower ASP of gloves, delays in shipments to key markets, customers holding less inventory amid declining the ASP and lower production volumes. The lower production volume came about as the pandemic resulted in the temporary closure of manufacturing facilities and a mandated 60 per cent workforce capacity at its manufacturing operations in Malaysia.

 

Earnings per share stood at 3.45 Singapore cents, shrinking from 9.05 cents a year ago.

 

Gross profit decreased by 55.1 per cent to S$44.6 million in 1H FY22 on the back of the lower ASP for products and higher fixed overheads linked to increased production capacity. As a result, gross profit margin fell from 62.2 per cent in 1H FY21 to 38 per cent in 1H FY22.

 

Share of losses from associates came to S$0.5 million, versus a profit of S$1.8 million previously, owing to losses reported by its German and the USA associates.

 

Production capacity at its manufacturing operations is currently 3.4 billion pairs of gloves per year. The temporary halt of construction activities in Malaysia between June and September last year led to a delay in additional production capacity coming onstream. A new manufacturing facility will start production in May 2022 and will lift total production capacity to 4.6 billion pairs of gloves per year.

 

Lee Jun Yih, executive director of UG Healthcare, said: " Despite intense competition and lower ASP, the group remains confident to achieve better financial performance compared to pre-Covid times as heightened hygiene awareness is likely to continue to drive demand for disposable gloves."

 

He added that UG Healthcare will continue to seek diversification in non-glove business opportunities in the healthcare related sector, leveraging on its downstream distribution infrastructure and capabilities.

 

In October, it launched a new range of proprietary branded reusable gloves for users in the heavy industry, such as chemicals, railway and energy.

 

No dividend was declared or recommended for 1H FY22 as the group said it plans to conserve cash for expansion and growth. In the corresponding period a year ago, it declared a special dividend of S$0.00105 per share.