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Top Glove Ltd versus UG Healthcare Corporation Ltd: Which Is a Better Buy Now?

There are around 700 companies listed on the stock exchange in Singapore. Out of those, there are a number of companies that have similar business operations. It is sometimes hard to determine which company in a particular industry is better than its peers.

In this article, we will do some quick-and-dirty comparisons between two companies operating in the glove manufacturing industry, Top Glove (SGX: BVA) and UG Healthcare Corporation Ltd (SGX: 41A), to determine which might be a better buy.

Introducing the Contenders

Top Glove prides itself in being the world’s largest rubber glove manufacturer, catering to the medical, food and general industrial sectors. It was founded in 1991 and was listed in Singapore in June last year.

The company’s in-house brands include Top Glove, TG Medical, Great Glove, Masterguard and Top Care.

As of 9 June 2017, it had 550 production lines producing 51.9 billion pieces of gloves per annum. Its market share was around 25% of the estimated world consumption of 190 billion pieces of gloves per annum for the year 2016.

Moving on, UG Healthcare Corporation’s gloves are used in a wide range of industries such as healthcare (including medical examination procedures, diagnostic procedures and laboratories), food and beverage (mainly food handling) and the automotive industry. The firm was listed here in December 2014.

Its products fall under the UniGloves brand, on top of manufacturing gloves as an original equipment manufacturer.

For the full year ended 30 June 2017 (FY2017), it produced 2.4 billion pieces of gloves per annum. The company is expanding its production line for an additional 500 million gloves, to achieve 2.9 billion gloves per annum by the end of FY2018.

The table below shows the market capitalisation and revenue for the two firms.

Do note that all figures quoted in the tables that follow are for the full year ended 31 August 2016 (FY2016) for Top Glove and full year ended 30 June 2017 (FY2017) for UG Healthcare, unless otherwise stated. Market capitalisation is as of the closing prices on 18 September 2017.

  Top Glove UG Healthcare Corporation Ltd
Market Capitalisation S$2,169.7 million S$40.2 million
Revenue S$972.0 million S$65.2 million

  Round 1: Profitability

In the first round, we will analyse the profitability of the companies in terms of profit margins and Return on Equity (ROE). The ROE figure reveals how efficient the management is in turning every dollar of shareholders’ capital into profits.

  Top Glove UG Healthcare Corporation Ltd
Gross Margin 13.6% 14.8%
Net Margin 12.5% 3.7%
ROE 19.9% 6.6%

For every dollar of revenue created by Top Glove, around 13 cents were generated as profits but for UG Healthcare, every dollar of revenue only gave four cents in profits. This shows that Top Glove is better at keeping costs low. Furthermore, Top Glove has a much higher ROE than UG Healthcare.

Winner: Top Glove, with far superior net margin and ROE.

Round 2: Growth

In the second round, we will compare the compounded annual growth rate (CAGR) of revenue, earnings per share (EPS) and dividend of the two firms for the past three FYs. Firms that can grow their sales and profits steadily over time should also see their share price rise too.

  Top Glove UG Healthcare Corporation Ltd
Revenue CAGR 12.6% 8.2%
EPS CAGR 41% -12.7%
Dividend CAGR 34.6% N/A

Top Glove has trounced UG Healthcare in all three aspects. Top Glove has steadily increased its dividend from 0.40 sen (RM) in FY2001 to 14.50 sen in FY2016. Its dividend policy is to pay annual dividends of 50% of its profit after tax and minority interest.

There was no dividend declared for UG Healthcare in FY2017 but a dividend of 0.587 Singapore cent per share was given out for FY2016.

Winner: Top Glove.

Round 3: Valuation

As Foolish investors, it is important to focus on the value of the business and not on the daily changes in the stock price.

We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two companies. Do note that the values below are as of the closing prices on 18 September 2017.

  Top Glove UG Healthcare Corporation Ltd
PE Ratio 17.9 16.5
PS Ratio 2.2 0.6
Dividend Yield 2.7% N/A
Share Price S$1.73 S$0.21

Top Glove has a higher PE and PS ratios as compared to UG Healthcare. Top Glove pays a dividend but UG Healthcare does not.

Winner: UG Healthcare, given its lower PE and PS ratios.

Foolish Bottom Line

Final Score: 2-1. Top Glove emerges as the overall champion, triumphing UG Healthcare in two out of the three rounds.

However, we have yet to look at other important aspects such as the balance sheet strength, free cash flow situation, management’s integrity, and so on. Potential investors interested in Top Glove should research more on the company before investing their money. This simple exercise would help to take some heavy-lifting off their back though.

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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 Sudhan P doesn’t own shares in any companies mentioned.