Medtecs International - DBS Research 2021-03-03: In For The Long Haul


Medtecs International - In For The Long Haul

  • Medtecs International's FY20 revenue (+480.4%) and earnings (+11-fold) were in line with expectations.
  • PPE demand in 1H21 holding steady vs 1H21 with selling prices only inching down.
  • On the lookout for expansion opportunities including M&A.
  • Maintain BUY with a slightly lower target price of S$1.25.

Medtecs' FY20 revenue and earnings in line

  • Medtecs International (SGX:546)'s FY20 revenue and net profit climbed to US$400.3m (+480.4% y-o-y) and US$131.7m (+11,348.5% y-o-y) respectively as the COVID-19 pandemic drove demand for Medtecs International’s personal protective equipment (PPE).
  • Gross profit margins were up 27.6ppts to 42.9%, supported by a higher proportion of sales of Medtecs-branded products.
  • Final dividend of US$0.0418 per share declared, bringing total FY20 dividend to US$0.0503 or S$0.067 per share. The dividend represents ~7% yield based on the last Medtecs International’s closing price of S$0.955.

Manufacturing and Trading & Distribution segments shine

  • The Manufacturing segment saw FY20 revenue rise by 576.4% y-o-y to US$357.8m. Profit before tax margins stood at 34.2% for FY20, an increase from 2.5% in FY19.
  • The Trading & Distribution segment reversed its fortunes and saw FY20 profit before tax rising to US$14.0m from US$0.3m in FY19 driven by higher demand and sales of higher margin products.
  • Hospital Services’ losses before taxes deepened to US$1.4m in FY20 from US$0.1m the previous year as a result of higher labour and linen amortization cost.

Market was expecting a special dividend

Demand in 1H21 looks stable

  • We believe the market will focus on the potential impact the improving pandemic situation may have on performance in FY21F.
  • We think a better performance across all segments is likely on a y-o-y basis with 1H21 looking stable compared to 2H20.
  • Optimistically, Apron, Gown and Coverall and Face Mask deliveries in England, while having fluctuated, remain higher than in 3Q20 as of Feb-2021. This may indicate that orders for PPE are still being delivered and this is positive for Medtecs International.
  • While England may not be the best representative of global PPE demand, the country is one of Medtecs International's customers. As such, it may offer a good idea of post-vaccination PPE demand with the UK making good progress on its vaccinations (over 20m out of a population of ~67m have received at least 1 dose).
  • In addition, ASP of PPE, while having inched down by an estimated 2-3% from 4Q20, remain healthy leading to our overall view of a stable 1H21.

Maintain BUY on Medtecs International

Woon Bing Yong DBS Group Research | Lee Keng LING DBS Research | https://www.dbsvickers.com/ 2021-03-03
SGX Stock Analyst Report BUY MAINTAIN BUY 1.250 DOWN 1.300