Market cap: RM160m
TP (6-12 months): RM0.65
We
hope our 2 write ups on M-mode and VisDynamics served you well. The
world cup fever is here. This was a darling stock last year, when stocks
was up almost 8x. Will this stock shine again this year? Remember IFCA
did a 20x back in 2014. Story of Ucrest and iMedic...most of you would
have known..
What is iMedic?
iMedic is
Ucrest’s medical hospital cloud network platform, which is a complete
patient information management system that stores patient’s medical
images and datas. This will allow both patients and doctors to track
uploaded data, and enables more efficient way of consultation through
the “cloud”. This would also provide big data for hospitals and doctors
to analyse its patients, bla bla...
Why Russia?
Healthcare in Russia is
provided by the state through the Federal Compulsory Medical
Insurance Fund, and regulated through the Ministry of Health. The
Constitution of the Russian Federation has
Check out the website here (https://www.globalgovernmentforum.com/new-russian-law-permits-remote-medical-consultations-patient-database/)
It stated
that in the future, commercial providers of telemedicine services will
also be able to join the system. MTS, one of the leading Russian call
companies, has said that the Russian market in telehealth services in
Russia will reach 18bn rubles (€260m or US$300m) within a year. The
state IT corporation Rostech believes that, including equipment and IT
systems, the sector might be worth 300bn rubles (€4.3bn or US$5.1bn) by
2020.
Ucrest current market cap is only USD40m, not even 1% of Russia’s
IT systems provider projected value (USD5b)! And according to
management, they only secures contract via a handful of state owned
enterprise like Trade Atlantics. How about Keyasic Pte Ltd, which is a
private company owned by Mr Eg. I believe the Keyasic Pte Ltd tenders
contract from another company like Trade Atlantics to diversify its
concentration to a single company. Companies that are aiming for
contracts normally use a few subsidiary to tender to increase their
chances of winning and to prevent monopoly, if you know what i mean
here.
How
about blockchain and AI initiative in new markets like China? We will
tell you more about it next time when Ucrest is big in China..
With oil
price surging to a new high, Russia, being a net exporter of oil, will
have more budget to spend in healthcare. According to channel checks,
management is expecting Russia to potentially double its budget in
online healthcare this year, hence, we will expect more hospitals to be
given this budget to employ online healthcare system. The ultimate
beneficiary? None other than Ucrest.
Financial analysis
Contracts of Ucrest (iMedic software)
-Virtual
Storage Platform v4.8– imedic for 10k license with a contract size of
USD1m, which means per user basis, it is about USD100 per year.
-iMedic software and hardware licenses for 15k user at about USD565k, which means about USD38 per user.
-iMedic licenses for cloud platform at USD840k for 40k users, which is about USD21 per user.
Why is GPM of Ucrest as high as 50%?
From these contracts, we know that, a
user license could cost about USD20-100, and a software person would
know that part of it is hardware one off installation and part of it is
recurring, meaning, if this license is continued next year, its software
license revenue could recur again next year. And why is GPM of Ucrest
as high as 50%?
Assuming
Ucrest receives a contract of USD1m for 12 months for a particular
hospital, and this hospital is happy with their software, 50% of USD1m
would be recurring next year, ie, USD500k. How about margins? Hardware
gross margins normally is about 10% while software could generate as
high as 80% gross margins.
Ucrest
will announce its Q4 FY2018 results in 2 weeks time. Could Ucrest repeat
a RM3.5m profit for the quarter again? We believe they could, as its
Chairman, Mr Eg Kar Yee have hinted previously that Q3 &Q4 revenue
would be at least RM24m, and with the same GP margins, we could work out
the profits for Q4 as well.
Valuation
How do
you value a tech company like Ucrest? Unfortunately, there are close to
none listed mobile health companies we could find. But generally, a
growing tech company like Ucrest deserve at least 15x forward P/E. This
is why Ucrest is proposing for 20% placement to fund their further
expansion, but due to weak pricing, they have delayed this plan. Sources
have told us that there are a few well known investors who are
interested to take a 10-20% stake in Ucrest.
From the
deals we had sourced throughout the funding space, the fund raised for a
few Electronic Health Record (EHR) companies were more than USD50m,
namely:
(i) Modernizing Medicine, which makes a mobile-based EHR for specialists, raised $231 million from global private equity firm Warburg Pincus.
(ii) PointClickCare, which makes a cloud-based EHR platform and other software solutions to advance senior care raised $85 million in new funding.
(iii) Truveris,
a healthcare technology company focused on cloud-based data analytics
solutions for the prescription benefits industry, announced that it has
secured $25 million in a new round of funding to accelerate its growth
strategies.
And many more here…
At RM14m
profit for FY2018 (May), if we peg at 15x, Ucrest should be priced at
RM0.45 minimum. What will drive Ucrest to more than this then? If Ucrest
can secure the same amount of contracts (about USD12m) in FY2019, our
analysis shows us that, Ucrest could achieve RM24m profits in FY2019.
How? We will show you after Q4 2018 is announced.
Technical analysis
Ucrest is
attempting a reverse head and shoulder breakout, and when it happens,
we will see price shoot up like a G6. With the world cup finals coming
next week, will we see a huge rally for Ucrest?
Resistance: RM0.365, RM0.455
Support: RM0.30
See you at RM0.55.
By Bagger Hunter
http://klse.i3investor.com/blogs/baggerhunterseries/165011.jsp
http://klse.i3investor.com/blogs/baggerhunterseries/165011.jsp
