UG Healthcare Corp IPO

2014 is absolutely the Catalist's year on the SGX. 

Share price changes since listing have been absolutely phenomenal. It is even more appalling considering healthcare related counters such as TalkMed, QT Vascular, ISEC Healthcare. 

Glove Maker UG Healthcare Corp has commenced on the public offer for its S$4.3m IPO (net proceeds) on the Catalist board. Just based on the precedent Catalist listings and the minimal public offer size (that generates more demand than supply), Mr Greenshoe would bet on this offering with a blind eye. 

Nevertheless, a few insights on this offering: 

Business: Like the fact that UG Healthcare has presence in the nitrile examination glove space. This creates higher margins compared to the usual latex space. 

Geography: Healthy geographical revenue breakdown. Germany represents 27%, UK represents 21% and North America represents 20%. 

Landscape: Globally there is an over-supply of rubber gloves. ASPs are dropping and competition is increasing. Hence it is crucial for a glove-maker to differentiate itself via cleanroom / nitrile areas. Recent outbreak of Ebola and other diseases will potentially increase demand for rubber related products. 

Peer Comparables: Lack of comparables in the Singapore market with the exception of Riverstone Holdings. Riverstone's share price has been pretty impressive - one straight line up. albeit plateau-ing slightly in the past couple of months. Peers around the region would undoubtedly be the Big 4 in Malaysia - Hartalega, Top Glove, Supermax, Kossan. Global peers include Ansell from Australia and Kimberley Clark from the US. 

Margins: Ebitda margin for UG Healthcare pales in comparison to its peers. At adj. ebitda margin of 11.2%, the Big 4 Malaysian peers are performing better at c.18% while its only Singapore peer is at c.25%. Margins are T's greatest concern. 

Valuation: Historical PER based on IPO price (post offering) at 8.3x. This is significantly undervalued compared to the regional peers. Refer to below table: 

Use of proceeds: 62% utilized on expansion of projects (sales and distribution network and production capacity), 5% utilized on R&D, 31% utilized on IPO expenses. remaining 1% utilized for working capital. Rather disappointed only 5% used for R&D. This needs to be bumped up. Also, a whopping 31% on IPO expenses. Frankly, company should just raise more money.

Dividend Policy: At least 20% of net profit after tax for FY16. Dividend yield across comparables range between 1.8% - 3.1%. 

Verdict: Hmm...not very comfortable about margins and intense competition on the sector. But precedent listings + discounted PER against peers might result in a potential hit. 

Going to the ATM now ;)

GS