UG Healthcare eyes emerging markets

INCREASED risks of transmission from infectious diseases over the years, such as Aids and the avian flu, have raised hygiene awareness in emerging countries such as China, Brazil and Nigeria, and have translated into higher demand for medical supplies, including medical gloves.

But maker of latex and nitrile (synthetic rubber) gloves, Malaysia-based UG Healthcare, expects demand from these markets to surge even further.

With UG Healthcare's products currently distributed to more than 50 countries, including its core markets in the United States and Europe, sales from China, Brazil and Nigeria presently constitutes a small percentage of the company's total revenues for the year ended June 30, 2014, which stood at S$49 million.

But UG Healthcare's executive director of business and corporate development, Lee Jun Yih, told The Business Times that he expects revenues from these markets to grow over the next few years because medical gloves per capita in these emerging markets are relatively low compared with the developed markets.

"Where these three countries are, in terms of the quality of gloves they require and also the number of gloves used per capita, are basically what Europe and the US were back in the eighties and early-nineties," he said. "The group has seen the development of the US and Europe over the last 15 years . . . this trend will happen in emerging markets."

A July 2014 report by Affin Investment Bank also sees potential demand growth from emerging markets, given the low penetration of glove usage in their healthcare industry.

For now, hampered by its "relatively small" manufacturing capacity, according to Mr Lee, UG Healthcare's production volumes still falls short of meeting current demand. Hoping to address the increasing need for medical gloves from the three emerging markets while continuing to grow sales in its core markets, UG Healthcare plans to further expand its production capacity as well as extend its distribution reach by working with new intermediaries and end-users.

But risks are also present in emerging markets where the company operates, such as Nigeria. In UG Healthcare's view, potential downsides in these markets include unexpected regulatory changes, political unrest, corruption and poor infrastructure support.

The company also counts its huge dependence on foreign labour in Malaysia as another cause for concern. With foreign workers comprising about 85 per cent of its total production workforce, any changes in foreign worker policy may have adverse effects on its business operations. But UG is hoping to reduce its labour dependence by improving operational efficiencies through technology advances.

The company is also positioning itself for upcoming trends in the industry by formalising a team dedicated to research and development (R&D) for new products within the sphere of latex and nitrile gloves.

"There are a lot of variations you can work with - different quality, weightage, scent and colours," said Mr Lee. "Markets trends are constantly changing . . . R&D is very important to identify market trends to meet market demands."

To realise its plans, the company launched its IPO on Friday for a Catalist listing on Singapore Exchange. With a total offering of 28.8 million shares, including 1.8 million shares offered to the public at 21.5 cents each, the IPO is set to raise about S$6.19 million in gross proceeds, including net proceeds of S$4.22 million.

Of this, UG Healthcare plans to use S$3.2 million to fund the second expansion phase of its production to ramp capacity up to 1.9 billion gloves per annum by July 2015. The company has already funded its first expansion phase, which will increase production capacity from 1.3 billion to 1.5 billion gloves per annum by January 2015.

UG Healthcare will also channel S$0.65 million of the IPO funds to beef up its sales and distribution network, and S$0.3 million on R&D and the development of new products. The IPO is set to close on Thursday, at noon, and trading of its shares will commence on Dec 8.

Mainly attributable to increased turnover from gloves, for the year ended June 30, 2014, UG's revenues had inched up 4.3 per cent to S$49 million while net profits jumped 28 per cent to S$4.9 million. Upon the completion of the IPO, the controlling shareholder, Zen UG, will own about 49.17 per cent of the the company.

SAC Capital Pte Ltd is the sponsor, issue manager, underwriter and placement agent for UG Healthcare's IPO. This is also SAC Capital's first Catalist listing.