Capacity expansion, diversification to boost UMediC
18 Apr 2024
Robust capacity expansion plans and medical equipment tenders are set to drive UMediC Group Bhd’s (UMC) earnings growth in the near term.
Hong Leong Investment Bank Research (HLIB Research) said the medical device maker has relocated its warehouse to a newly built plant, making room for manufacturing-capacity expansion at its existing site, following the completion of the group’s new facility.
The new facility is awaiting regulatory approvals.
“Production capacity is expected to reach 420,000 bottles per month by April 2024 (from 300,000 units per month currently), which is then expected to increase to 600,000 bottles per month by December 2024,” the research house said in a report yesterday.
HLIB Research said the necessary equipment to produce up to 600,000 bottles has been successfully installed at UMC’s production facility.
Currently, UMC is conducting thorough test runs to ensure adherence to quality standards, before a gradual ramping up of production.
“Considering the robust demand for its HydroX prefilled humidifier, we acknowledge the potential for further capacity expansion beyond the completion of the ongoing expansion,” the research firm said.
Apart from that, UMC’s medical equipment tenders for new hospitals and expansion projects continued to remain strong, alongside the emergence of tenders for routine medical equipment replacement.
HLIB Research noted that some of the tenders are taking on a leasing model as opposed to upfront lump-sum payments upon equipment delivery.
A leasing model entails staggered payment for equipment, either with a monthly or quarterly payment.
“This signals the government’s initial venture into the leasing model and if successful, we anticipate a potential increase in similar tenders in the future.
“This transition could prove advantageous for UMC, as it would necessitate the participation of suppliers with solid financial standing due to the lengthened payment period, potentially side-lining smaller competitors,” the research house said.
UMC has also recently diversified into healthcare services with the establishment of the UMC Care Centre.
This is a brand new venture, complementing its core business of medical-equipment distribution.
“The care centre will occupy a four-storey shoplot spanning 7,427 sq ft in Batu Kawan, Penang. It will offer a range of services including aged care, short-term care for post-surgery patients and long-term care for individuals with illnesses,” HLIB Research said.
The research house added that approval for the facility’s floor plan has been obtained from local authorities and renovation work is currently in progress, with completion expected by the end of May. Operations are slated to commence in July 2024.
UMC also recently secured approval to transfer to the Main Market of Bursa Malaysia. The exercise is expected to be completed by the first half of 2024.
“While this transition does not entail any fundamental changes within the company, we regard it as a positive development as it would make UMC more investable, improving participation from institutional investors,” the research house said.
HLIB Research maintained a “buy” call on UMC with a target price of 91 sen. It also advocates investors eyeing long-term growth to accumulate the company’s shares on price weakness.
Source: The Star
