UG Healthcare Corporation Ltd Is Near A 52-Week High – Is It Worth A Deeper Look By Investors?

Singapore’s stock market hasn’t done too well of late. The Straits Times Index (SGX: ^STI), our local market barometer, had closed yesterday at 2,923 points, some 18% lower than a 52-week high of 3,550 that was reached in April.

But, that doesn’t mean that all stocks have had a rough time too. UG Healthcare Corporation Ltd (SGX: 41A) would be one stock that has swam against the tide. At its closing price of S$0.495 yesterday, UG Healthcare’s shares are a mere 8% away from a 52-week high of S$0.54. More impressively, that price represents a gain of 120% from just three months ago.

Listed in December 2014, UG Healthcare is based in Malaysia and is a maker of natural latex and nitrile examination gloves and ancillary products. The company’s product suite is distributed to more than 50 countries around the world.

A Singapore-listed company that can be seen as a competitor of UG Healthcare in the healthcare gloves market is none other than Riverstone Holdings Limited (SGX: AP4).

With that, let’s dig into some of the possible reasons for UG Healthcare’s spectacular rise in share price over the past three months:

  • Expansion underway – From an annual production capacity of 1.5 billion gloves currently, UG Healthcare is beefing up its production levels so as to hit annual capacity of 1.9 billion gloves by the fiscal year ending 30 June 2016 (FY2016).
  • Resilient industry – UG Healthcare could potentially benefit from a resilient healthcare industry with increasing hygiene and healthcare awareness across the world.
  • Unexpected tailwinds – UG Healthcare is a global exporter and its products are transacted in many different foreign currencies, especially the U.S. dollar. On the other hand, the company’s operating expenses and purchases are denominated mainly in the Malaysian ringgit. A falling ringgit – something which has happened over the past year – can thus be an advantage for UG Healthcare.

Foolish Takeaway

Investors are often troubled by the fact that shares which are near record highs may drop or pull back a great deal after any perceived euphoria is over.

But, it’s good to note that there’s no point in relying on a share’s 52-week high or low to make investing decisions. It’s far more important to dig deep into the share’s business fundamentals and think about its future five, 10, or even 20 years from now.

That said, while it’s a good thing to see that UG Healthcare has a number of positive things going for its business, it’s also worth thinking about the issue of valuation. Is UG Healthcare’s future growth already baked into its current share price given the stupendous 120% gain over the past three months?

For perspective, UG Healthcare is valued at 29 times its trailing earnings at its closing price of S$0.495 yesterday. In contrast, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – has a price-to-earnings ratio of 12 as of yesterday too.

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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.