UG Healthcare's ASP and gross margin have bottomed out. What's next?

SINGAPORE (Aug 29): Maybank Kim Eng is downgrading UG Healthcare to a “hold” with a lower target price of 37 cents from 52 cents previously, on lower second-half core growth and earnings expectations.

In a Monday note, analyst John Cheong said core earnings for the glove-maker had fallen 31% from 1HFY16, dragged down by lower average selling prices (ASP) and gross margins from rising competition.

But Cheong says UG Healthcare’s management believes its ASP and gross margin have bottomed and performance will improve as it continues with its capacity expansion. In FY17, capacity should rise by 26% as 500 million gloves per annum is expected to come online by November.

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