by HLIB RESEARCH 

WE RECENTLY met with UMediC Group Bhd’s (UMC) management and came away feeling upbeat on its prospects. As we enter into 2H23, we anticipate an increase in the opening of tenders for medical equipment procurement from the public sector in July and August, to ensure timely delivery by December 2023. 

Separately, UMC is also on track to launch two of its new products (prefilled nebuliser and sterile water for inhalation) by end-2023. We keep our forecasts unchanged, maintain ‘Buy’ with an unchanged TP of RM1.03; our TP is based on 26.5x P/E multiple tagged to its CY24f EPS of 3.9 sen. With the recent share price retracement offering a significant upside potential of 48%, we advocate investors to take advantage of this weakness and accumulate. 

We met UMC’s management and came away with the following key takeaways: 

Anticipating more public sector orders. 

In 1HFY23, UMC faced a delay in public sector medical equipment orders due to the change in government. Typically, UMC will see stronger medical equipment sales to the public sector in 2H of the calendar year (equivalent to its 1HFY) as the Ministry of Health (MoH) utilises the budget allocated for the year to procure medical equipment. Also, as we enter into 2H23, we anticipate 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 Dec-23 since the standard tender process takes approximately four months from initiation to completion.

We are upbeat on the distribution segment’s performance in 1HFY24f, driven by the anticipated influx of public sector orders. 

New products to be launched. 

UMC has set its sights on commercialising two new products by the end 2023, which includes: (i) Prefilled nebuliser; and (ii) sterile water bag for inhalation. We note CE certification audit process for the prefilled nebulisers has been completed, and UMC targets to commercialise the product once certification is received. We expect the prefilled nebuliser to contribute more meaningfully starting from CY24f. Additionally, the sterile water 

bag for inhalation is presently undergoing product testing and validation, with plans for commercialisation after the launch of prefilled nebuliser. 

Expansion on track.

In order to cope with the stronger demand for its in-house manufactured products, UMC is expanding its production floor space by constructing a new facility adjacent to its existing office and plant. Expansions are underway, with the construction of the plant targeted to be ready by September 2023. We expect the plant to be ready operationally by end-2023. 

Forecast. Remain unchanged. 

Maintain ‘Buy’, with unchanged TP of RM1.03. We maintain our ‘Buy’ rating on UMC, with an unchanged TP of RM1.03. TP is based on a P/E multiple of 26.5x, against its CY24f EPS of 3.9 sen. Our outlook on UMC’s prospects remains optimistic, driven by the growth potential of its manufacturing segment and its favourable position to capitalise on the government’s commitment to increase public healthcare spending to 5% of GDP (from an estimated 2.9% in 2021). With the recent share price retracement offering a significant upside potential of 48%, we advocate investors to take advantage of this weakness and accumulate. 

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