Affin Hwang said there is superior earnings potential for UMedic in the near term, coupled with its scarcity as the only listed Malaysian player in this field.
PETALING JAYA: Distributor of medical equipment and consumables, UMedic Group Bhd, is in a good position to chalk up strong earnings in the near term amid downside risks.
The company is not only the sole listed Malaysian entity in this field, but has the manufacturing capacity to add on new products to meet global demand.
Plans are underway for the allocation of more space for the production floor as well.
Affin Hwang Investment Bank, which is initiating coverage with a “buy” call and a target price of RM1 for the company’s share, said the upside risks to its estimates would happen if UMedic further penetrates developed markets.
The ongoing expansion allows the manufacturing production floor space to potentially quadruple in the long run, it said, adding that the group also develops and commercialises its own medical consumables, which the research house believes would be the upcoming growth driver.
“The rigorous selection process to obtain distributorship rights and the research and development efforts to commercialise new products act as high barriers of entry to the industry.
“The group is likely to see margin expansion in the coming years, as we expect the more lucrative manufacturing segment to form 50% of earnings before interest by financial year 2025 (FY25), from about 20% in FY22.
“Our optimism on the company stems from the growth prospects of its manufacturing arm, with ample production space post-expansion earmarked for future capacity to tap on the strong global demand,” it noted.
Affin Hwang said there is superior earnings potential for UMedic in the near term, coupled with its scarcity as the only listed Malaysian player in this field.
However, it said downside risks to its call include a slowdown in demand for medical devices, supply chain disruptions and loss of distributorship rights.
For its second quarter ended Jan 31, 2023, UMedic reported a net profit of RM2.91mil on a revenue of RM12.52mil. Basic earnings per share stood at 0.78 sen.
There are no comparative figures for the preceding corresponding quarter as this is the fourth interim financial statement announced by the company.
For the six-month period ended Jan 31, 2023, UMedic recorded a net profit of RM4.91mil on a revenue of RM23.83mil.
The company said it expects the medical device industry in the near future to be driven by the ongoing Covid-19 pandemic.
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