UMC’s new plant capacity forecast to boost earnings

PETALING JAYA: Analysts remain optimistic on UMediC Group Bhd’s (UMC) performance for the coming quarters, supported by its new plant capacity as well as the increase in public healthcare expenditure by the government.

“Our optimism towards UMC remains intact, fuelled by its robust capacity expansion and strategic advantage in capitalising on the government’s commitment to increase spending on public healthcare to 5% of the gross domestic product,” Hong Leong Investment Bank (HLIB) Research said.

According to the research house, UMC’s relocation of its warehouse to the new plant paved the way for the group to expand its manufacturing capacity.

The production capacity for the company’s Hydrox pre-filled humidifiers is set to increase from 300,000 bottles per month to about 420,000 bottles per month, a 40% increase, before reaching its target of 600,000 bottles per month by December 2024.

HLIB Research noted that the government’s increase in allocation to the Health Ministry, coupled with expansion among private hospitals, will support the demand outlook for medical devices.

“We expect a quarter-on-quarter improvement in both revenue and bottom-line,” HLIB Research added.

However, HLIB Research said, in terms of its financials, UMC missed expectations as its results for the third quarter of financial year 2024 (3Q24) came below the research house’s and consensus expectations by 58% and 56%, respectively.

For 3Q24 ended April 30, 2024, UMC recorded a drop in net profit of 22.21% year-on-year (y-o-y) to RM1.58mil, reflecting a basic earnings per share of 0.42 sen per share, compared with RM2.03mil in the same quarter of the previous year.

On the other hand, UMCs revenue witnessed a 21.96% y-o-y rise to RM11.69mil for 3Q24, lifted by its marketing and distribution and manufacturing segment.

This brings UMCs nine-month net profit and revenue to a total of RM5.95mil and RM39.69mil, respectively.

HLIB Research noted that the lower deviation was mainly due to lower-than-expected revenue and higher-than-expected tax rate.

Meanwhile, Phillip Capital Research said UMC’s earnings shortfall was due to weaker-than-expected sales, professional fees for listing as well as higher effective tax rates resulting from non-deductible transfer listing expenses incurred.

“UMC’s nine-month core net profit of RM7mil fell short of our and consensus expectations, representing 59% and 56% of respective forecasts,” the research house stated.

“Following the weak results, we cut our financial year 2024 (FY24) to FY26 earnings per share forecast by 19%-27% to account for slower-than-expected sales in FY24 and lower margin expectations.”

Phillip Capital Research said it remains positive on UMC’s FY25 earnings prospects and maintained a “buy” call on the group with a lower 12-month target price of 85 sen.

HLIB Research also cut its FY24, FY25 and FY26 forecasts by 21%, 18% and 18%, respectively, to account for lower revenue assumptions and higher tax assumptions.

The research house maintained a “buy” call on UMC with an unchanged target price of 91 sen based on a price-to-earnings multiple of 26.5 times against its forecast 2025 earnings per share of 3.4 sen.