Due to the extension of the NRP1, UG Healthcare’s manufacturing plants in Seremban and Negeri Sembilan will have to comply with the current restrictions, which may have a negative impact on UG Healthcare’s near-term earnings.
Under the NRP1, glove manufacturers like UG Healthcare, are only allowed to work at 60% workforce capacity. As such, glove production capabilities will be lowered by an estimated 20-30%.
See also: 'Buy' UG Healthcare, glove manufacturer 'too cheap to ignore': analysts
On this, the team has also lowered its earnings estimates for the FY2021 ending June by 11% to $106 million due to a lower utilisation rate assumption.
The team has kept UG Healthcare’s earnings estimates for the FY2022 to FY2023 unchanged as they expect the current phase to “eventually be over”.
The heightened long-term consumption of gloves is expected to remain due to higher sanitation and health awareness due to the recent pandemic.
While this has helped UG Healthcare, the average selling prices (ASPs) for gloves are likely to drop.
“We believe ASPs peaked in 1QFY2021 due to rising competition from new gloves supply in the market,” writes the team.
The lower target price estimate has factored in the team’s lower earnings estimates and higher long-term environmental social and governance (ESG) costs.
As at 4:33 pm, shares in UG Healthcare are trading flat at 58.5 cents or 2.5 times P/B, according to RHB’s estimates.
Photo: Bloomberg
