Uscom Limited

UCM Details

Development of Cardiovascular Monitors: Uscom Limited (ASX: UCM) is engaged in the design, development, manufacturing and marketing of non-invasive cardiovascular and pulmonary medical devices. The market capitalisation of the company as on 13 May 2021 stood at ~$22.32 million. As per a recent update, the company has completed the development of two new specialised cardiovascular monitors – USCOM O₂ and the USCOM Basic for their sale in the Chinese market.

Q3FY21 Results Update: During the quarter, the company reported cash receipts of $0.89 million. It reported a decrease in the sale revenue by ~20% to $0.78 million compared to the preceding quarter. As per the company, sales were impacted due to the Chinese New Year, while activities in the European and US market remained constrained due to the pandemic. It ended the period with a cash position of $2.03 million. UCM reported a net operating cash outflow of $0.25 million during the given period.

Q3FY21 Cash Flow from Operations (Source: Company Reports)

Key Risks: The company has operations across the globe, and thus it is exposed to risks related to international trade wars and currency volatility.

Outlook: The company remains cash flow positive for the YTD period, aided by decent sales in China. The management has made a note of 18.3% GDP growth in China for the March quarter and hopes for increased health spending, going forward. With the receipt of pending approvals, it expects to increase its revenue over the next 12 months.

Stock Recommendation: The company has recently announced that China NMPA has approved the sale of its high fidelity central blood pressure monitor, USCOM BP+. As per ASX, the stock of UCM is trading close at its 52-weeks’ low levels of $0.135. The stock of UCM gave a negative return of ~17.14% in the past six months and a negative return of ~12.12% in the past one month. On a technical analysis front, the stock of UCM has a support level of ~$0.11 and a resistance level of ~$0.181. On a TTM basis, the stock of UCM is trading at an EV/Sales multiple of 3.7x, lower than the industry median (Healthcare Equipment & Supplies) of 11.1x. Considering the current trading levels and valuation on TTM basis, positive cash flow for YTD period, expected demand for its products and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.135, down by 6.897% as on May 13, 2021.

UCM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Holista Colltech Limited

HCT Details

Agreement for Exclusive Distribution: Holista Colltech Limited (ASX: HCT) is engaged in the development and commercialisation of food ingredients and ovine collagen for cosmetic and biomedical applications. The market capitalisation of the company as on 13 May 2021 stood at ~$13.49 million. The company has recently announced that its wholly-owned subsidiary, Holista Biotech Sdn Bhd, has signed an agreement for exclusive distribution with Mutiara Seribumi Sdn Bhd, for the distribution of its product ovine collagen in China. The company believes that the revenue received under this agreement will be sufficient to fund the expansion of the Collie Plant, which will only be undertaken from year two onwards.

Facilitation of Share Sale for Holders of Unmarketable Parcels: On 10 May 2021, the company has announced that it has established an Unmarketable Parcel Sale Facility for holders with parcels of fully paid ordinary shares in HCT and valued at less than $500. It will enable the UMP shareholders to sell their shares without incurring any brokerage.

Q1FY21 Financial Update: During the period, the company reported impressive growth of ~312% in Ovine Collagen sales, and Health Food Ingredients grew by ~64% on the previous corresponding period. It also witnessed a substantial improvement in net operating cash outflow to $17,000 in Q1FY21, compared to a cash outflow of $798,000 in the pcp. The total cash available for the company stood at $2.9 million as of 31 March 2021.

Q1FY21 Cash Flow from Operations (Source: Company Reports)

Key Risks: The Group’s activities expose it to a variety of financial risks like foreign currency risk, price risk and interest rate risk. Further, the company is also exposed to the risk and uncertainties caused by the COVID-19 pandemic.

Outlook: The company expects a reverse in drop on infection control solutions going forward due to a decent rebound in iGalen’s performance. It is optimistic for its future prospects and expects growth through 2021.

Stock Recommendation: The company has been served with a statement of claim by Eight Mercatus (USA) Pte Ltd with respect to a defamation claim against the company in the High Court of Singapore. However, HCT is of the opinion that the claim is without merit and plans to defend itself in the court. As per ASX, the stock of HCT is trading below its average 52-weeks’ levels of $0.048-$0.200. The stock of HCT gave a negative return of ~14.75% in the past nine months and a negative return of ~19.99% in the past one month. On a technical analysis front, the stock of HCT has a support level of ~$0.0473 and a resistance level of ~$0.0651. On a TTM basis, the stock of HCT is trading at an EV/Sales multiple of 1.6x, lower than the industry median (Healthcare) of 14.2x. Considering the robust growth in sales of Ovine Collagen, improvement in cash outflow, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.052, up by 6.122% as on May 13, 2021, owing to the update regarding the singing of the agreement for exclusive distribution with Mutiara Seribumi Sdn Bhd.

HCT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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