This article first appeared in The Edge Malaysia Weekly on July 10, 2023 - July 16, 2023

PENANG-based UMediC Group Bhd initially began as a distributor of medical devices before venturing into the manufacturing business about 10 years ago.

Today, the manufacturing division is contributing about 30% to UMediC’s revenue. The group’s aim is to increase manufacturing revenue to account for half of its turnover in the near future.

According to UMediC CEO and major shareholder Eric Lim Taw Seong, the group is currently producing 300,000 bottles of pre-filled humidifiers per month.

“With our RM3.5 million expansion next door, which is slated for completion by August or September, we should be able to double our capacity to 600,000 bottles per month. Based on our sales forecast, the demand for pre-filled humidifiers is anticipated to remain strong,” he tells The Edge in an interview at UMediC’s headquarters in Batu Kawan, Penang.

UMediC alternate director Ng Sze Hui points out that the group’s manufacturing products — including its halal-certified pre-filled humidifiers that are patented in Malaysia — are one-time use or single-patient use consumables.

“The nurses can conveniently open the pre-filled humidifiers and plug them on the patients’ oxygen masks. It’s fast and easy. But if the nurses were to use the old reusable products, they would need to make sure that the products are sterilised, which is time-consuming and ultimately slows down the time required to treat a patient,” she explains.

In a move to increase its manufacturing revenue, UMediC is not only planning to launch at least four new products but has also recently acquired a 70% stake in Patho Solutions (M) Sdn Bhd for RM600,000.

Patho Solutions is a local start-up focusing on providing total histology and cytology solutions. The company provides tailor-made solutions according to each laboratory’s specific needs.

Ng, who is also the legal and product developer manager, believes that the acquisition of Patho Solutions could expand UMediC’s product offerings in the long run.

“The laboratory industry is a little bit different compared to the medical devices industry. The lab industry needs to use testing equipment and the skillset is also different.

“We ventured into the lab business so that we could sell our testing equipment and consumables, which could provide better margins than medical devices. The market size is big for the lab industry and we foresee a strong opportunity for Patho Solutions to capture more market share going forward.”

UMediC currently manufactures its in-house pre-filled humidifiers and inhaler spacers under their respective brands, namely HydroX and AirdroX. Humidifiers are used to humidify the respiratory gas for patients. They are mostly used in oxygen therapy. Inhaler spacers help the patients using a spacer and extend the amount of time it takes for the medication to enter the lungs.

Ng reveals that UMediC plans to launch two new products, namely pre-filled nebulisers and sterile water for inhalation, as early as this year. Pre-filled nebulisers are used for respiratory patients, especially those requiring sterile water for inhalation.

“We are also in the R&D [research and development] stage of developing a humidifier humidity sensor and digital oxygen flowmeter. Hopefully, we can launch these two products by next year. All these four new products, together with our two existing products, will complement each other,” she says.

The humidifier humidity sensor is designed to be used with pre-filled humidifiers to detect their water level and improve the quality of patient care. The digital oxygen flowmeter is designed for oxygen therapy applications in the hospital.

UMediC’s manufacturing products have a market presence in more than 30 countries in Asia-Pacific, Southeast Asia, Oceania, the Middle East, Latin American, Europe and Africa. About 30% of its sales comes from these export markets.

Apart from its manufacturing business, UMediC also distributes various branded critical care medical devices and consumables, including patient monitors, ventilators, maternal and infant care machines, ultrasound machines and medical furniture. Its principals and suppliers are Merit Medical, Philips Healthcare, GE Healthcare, Mindray and Care Vision Healthcare.

“We are not an exclusive distributor For Philips Healthcare and GE Healthcare brands, but we are an exclusive distributor for some of their products in Malaysia,” says Lim.

UMediC’s customers are private and public hospitals, as well as other healthcare service providers.

According to Lim, as a lot of hospitals have been investing heavily in Covid-related healthcare equipment over the last few years, there has been a lack of spending on other equipment.

“As we enter the post-Covid era, we have seen increasing orders for non-Covid-related healthcare equipment, such as ultrasound machines, as well as maternal and infant care machines. This tells us that hospitals are now shifting their budgets towards buying non-Covid-related healthcare equipment.

“For example, hospitals that have not invested enough in patient monitors and hospital beds have started to reallocate spending to these areas again. Moreover, the government has planned to build more public hospitals over the next few years, which will spur demand for more medical equipment,” he says.

Meanwhile, considering that more people have medical cards these days, they would prefer to be admitted to private hospitals where they would ask for single rooms, which means hospitals will also need to buy more machines to cater for the demand, Lim says.

Kenanga Research last Tuesday maintained an “overweight” call on the healthcare sector and said the long-awaited reform of the country’s healthcare system, in the form of a national healthcare insurance scheme, is likely to be back on the table, assuming a market-friendly outcome in the state elections.

In a July 4 sector update, the research house says it believes time is running out for an overhaul of the healthcare system with public hospitals overflowing with patients and long waiting lines at emergency wards, and ensuring universal coverage for the healthcare needs of all Malaysians.

According to Lim, another big growth area for UMediC is medical tourism, which has become one of the booming sectors in Malaysia. “Nowadays, when you visit any private hospital in Penang, you will most likely find more Indonesians than Malaysians. This is a testament to Penang’s mature ecosystem for medical tourism. You would always see hospital buses at the airport. Apart from Indonesians, some Singaporeans are coming here too if their insurance policies cover foreign hospitals.”

UMediC is 51.44%-controlled by UMediC Capital Sdn Bhd, a private vehicle co-owned by Lim and UMediC non-executive chairman Datuk Ng Chai Eng.

Chai Eng, who was one of the richest men in Malaysia with a net worth of US$255 million last year, is the co-founder of Main Market-listed UWC Bhd, an engineering services firm with a market capitalisation of RM3.62 billion.

Lau Chee Kheong, another co-founder of UWC and a non-executive director of UMediC, owns a 4.75% stake in the medical device specialist. Other top 30 shareholders of UMediC include Areca equityTRUST Fund, Maybank Malaysia Smallcap Fund and Gibraltar BSN funds.

Ng, who is Chai Eng’s daughter, remains optimistic about UMediC’s financial performance going forward. She says the group is now looking at double-digit profit growth in its financial year ending July 31, 2023 (FY2023), up from RM6.42 million in FY2022.

UMediC reported a net profit of RM6.9 million in the nine months ended April 30, 2023 (9MFY2023). As at 9MFY2023, its net cash position stood at RM17.5 million.

UMediC made its debut on the ACE Market of Bursa Malaysia on July 26 last year at an initial public offering (IPO) issue price of 32 sen apiece. Year to date, UMediC’s share price has gained four sen or 6% to close at 72 sen last Thursday, giving it a market capitalisation of RM269.2 million. The counter is trading at a historical price-earnings ratio (PER) of 34 times.

In a June 7 report, Affin Hwang Investment Bank analyst Andrew Lim maintains a “buy” call on UMediC with a target price of RM1, which is pegged to a PER of 26 times in its calendar year 2024 earnings — at a premium to the industry average of 20 times — given its “superior earnings growth potential in the near term”, coupled with its “scarcity as the only listed Malaysian player in this field”.

“Our optimism about the company stems from the growth prospects of its manufacturing arm, with ample production space post-expansion earmarked for future capacity to tap the strong global demand. Downside risks to our call include a slowdown in demand for medical devices, supply chain disruptions, and loss of distributorship rights,” he writes. 

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