PETALING JAYA: Despite UMediC Group Bhd (UMC) incurring a surge in operating costs, Hong Leong Investment Bank Research (HLIB Research) is upbeat about the medical device maker’s business going forward.

The research house said its optimism remains intact, fuelled by the company’s robust capacity expansion and strategic advantage in capitalising on the government’s commitment to increase public healthcare expenditure to 5% of gross domestic product (GDP).

“Having secured the necessary approvals, UMC has relocated its warehouse to a new plant, making way for expansion of its manufacturing capacity. UMC’s production capacity is set to increase by 40% to around 420,000 bottles per month by April this year before reaching 600,000 bottles per month by December the same year,” it added.

The company is principally involved in the marketing and distribution of branded medical and consumable devices, as well as the development, manufacturing and marketing of its own brand of medical consumables.

UMC’s chief executive officer said recently, “the new factory will not only double our manufacturing capabilities but also enable us to meet the rising demand for medical consumables globally enabling us to better grow our regional footprint and propel us to new heights,”

The brokerage is maintaining its “buy” call on the stock,with a lower target price of 91 sen (from RM1) following an earnings revision.

“Our target price represents a price-earnings multiple of 26.5 times, against its calendar year 2024 forecast earnings per share of 3.4 sen,” the research house said.

HLIB Research said at the same time it is cutting UMC’s financial year 2024 (FY24) to FY26 earnings forecasts by 7% to 10% as it raises its operating costs and tax assumption.

The company’s net profit fell 14.7% to RM2.5mil in the second quarter ended Jan 31, 2024 compared with RM2.9mil in the same quarter last year.

Revenue rose 7.7% to RM13.5mil against RM12.5mil posted a year earlier. Earnings per share for the period fell to 0.66 sen from 0.78 sen previously.

In the first six months to Jan 31, UMC posted a net profit of RM4.4mil, down 11% from RM4.9mil while revenue expanded RM28mil from RM23.8mil a year ago.