5 Things You Should Know About UG Healthcare’s IPO

Credit: Simon Cunningham

Glove maker Riverstone Holdings Limited (SGX: AP4) has had a great run since its listing in 2006, gaining 203% to S$0.955 currently. With the up-and-coming listing of UG Healthcare, a competitor to Riverstone, investors might be interested to see if there can be another market-beating glove maker in Singapore’s share market. UG Healthcare would be listed on the Catalist board and its prospectus can be found here.

UG Healthcare is an established glove manufacturer based in Malaysia and the company derives the bulk of its revenue from the production of natural latex and nitrile examination gloves. On top of that, the firm also distributes ancillary products such as surgical, vinyl, and cleanroom gloves, face masks, and other medical disposables.

The glove maker’s products are sold either under its own Unigloves brand, or under third party labels. UG Healthcare’s gloves are manufactured in two facilities based in Seremban Malaysia that have a combined capacity of up to 1.3 billion gloves annually (for some perspective, Riverstone can churn out 3.1 billion gloves per year as of 2013).

UG Healthcare has also managed to complement its manufacturing platform by forming an extensive distribution network across more than 50 countries.

With all these as a backdrop, let’s dive into the five things you should know about UG Healthcare’s initial public offering (IPO).

1. The nitty-gritty

The company would be issuing 28.8 million new shares priced at S$0.215 each. This would give UG Healthcare a market capitalisation of S$40.4 million based on the offering price and the enlarged share count post-IPO.

Of the 28.8 million shares to be issued, 1.8 million would be made available to the general public. The public offer opened last Friday at 6pm and will close at 12 noon on 4 December.

2. Glove industry’s landscape

According to UG Healthcare’s listing prospectus, the glove manufacturing industry the company belongs to “is resilient to economic downturns, as gloves serve as a basic necessity in the healthcare industry to prevent cross contamination and transmission of infectious diseases.” There are also no foreseeable substitute for gloves.

The volume of glove production in Malaysia has increased steadily since 2000. For a number of years now, the country has also occupied pole position in the world for the manufacture and export of gloves. UG Healthcare “expect[s] Malaysia to remain a dominant player” in that space.

The outlook for the gloves manufacturing industry as a whole also looks promising. Increased international healthcare standards and the outbreak of infectious diseases (like the recent Ebola case) can potentially act as strong catalysts for the demand for healthcare gloves.

3. UG Healthcare’s business fundamentals

From the financial year ended 30 June 2012 (FY2012) to FY2014, UG Healthcare had seen constant growth in revenue and net profit as seen in the chart below. In particular, the company’s net profit had grown at a very healthy compounded annual rate of 19.74% in that period. The company’s growing net profit margin is also noteworthy; the figure has grown from 6.88% in FY2012 to 10.02% in FY2014.

UG Healthcare income statement

Source: UG Healthcare IPO prospectus

Another key highlight worth mentioning is UG Healthcare’s geographically diverse revenue base. For instance, in FY2014, the company had sold its gloves to six key regions as shown in the table below.

Region Percentage of overall revenue for FY2014
Germany 27.5%
UK 20.9%
USA & Canada 19.8%
China, Hong Kong & Taiwan 4.66%
Japan 2.19%
Malaysia 15.9%
Others 8.96%

Source: UG Healthcare IPO prospectus

We’ve just seen some healthy points about UG Healthcare’s financials, so let’s take a look at areas where investors should keep an eye out on. Between FY2012 and FY2014, the company’s balance sheet has not exactly been the healthiest with it being in a net-debt (where total borrowings exceed total cash) position, though it must be noted that the company has had more than adequate equity to handle the borrowings.

UG Healthcare’s cash flows also has room for improvement, given that operating cash flow has declined by almost half between FY2014 and FY2012.

UG Healthcare balance sheet and cash flow statistics

Source: UG Healthcare IPO prospectus

4. Use of proceeds

UG Healthcare would raise around S$4.22 million from the IPO after deduction of the estimated listing expenses. Of that sum, S$3.2 million would go towards the expansion of the company’s production capacity. The remaining funds will be used for research & development work, general working capital, and the expansion of the company’s sales network.

In its listing prospectus, UG Healthcare mentioned that it is planning to expand its current manufacturing facilities by installing additional production lines. The first and second phases of expansion are expected to be completed by January 2015 and July 2015 respectively. Upon completion of each phase, the company’s total annual production capacity should increase from the existing 1.3 billion to approximately 1.5 billion and 1.9 billion gloves respectively.

5. Valuation

With a listing price of S$0.215, UG Healthcare’s shares would be valued at a price to earnings (P/E) ratio of 8.2 times based on its earnings per share of 2.61 Singapore cents for FY2014. For some perspective, Riverstone and Top Glove Berhad (the latter’s the largest rubber glove manufacturer in the world and is listed in Malaysia) are currently trading at 14 and 16 times their trailing earnings respectively.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.