Medtec International have posted its record year financial results on 1 March 2021. Full year net profit to be US$ 131.7million. Cash balance have soared to a high of 82.1million. However, the market reacted negatively, as share price fell from 1.11 to 1.00 (-9%). The article will be sharing interesting information shared during the Q&A session with Medtec Internation CEO William Yang, hosted by Maybank Kim Eng on 3 March 2021.
The over arching theme for the presentation will be sustainability of Medtec’s growth. During the presentation the management have presented 3 actions that Medtec will implement: Integration, Global Stockpiling Service and Global Procurement Platform.
The action involves expanding new sales channel by selling products on both online and offline channels, the focus will be to increase brand awareness.
Expanding the product lines with the introduction of Medtecs Shield related products.
Partnering with key raw material vendors to ensure reliable supply of the critical raw materials.
Global Stockpiling Service
Global Procurement Platform
Demand of PPE in view of better-than-expected vaccine roll out?
Demand for PPE is still stable, based on market research, it is predicted that the market of PPE will grow in the next 3 to 5 years for 7% to 10%. Medtec’s goal is to increase market share in the space.
Majority of the orders currently are from recurring customers.
What is the proportion of sales are recurring?
A big portion of sales is from recurring sources.
How to cater to capacity issue?
Will be least worry about capacity issue, as Medtec can outsource the workload to their ally, which allows Medtec to ramp up in a short period of time.
What is the market price for PPE and mask pricing for current?
Regular 3 ply mask price is approximately the same price pre-covid.
High end N95 mask, the price is still quite expenseive, a lot higher then pre-covid period.
Isolation gown, price is 5 to 15% higher than pre-covid period.
Shareholder return and dividend policy going forward?
Dividend policy is currently still in discussion. The company had a huge transformation during the year and there are a lot of opportunities in the market. Medtec will want to growth through M&A and Joint Ventures, these require cash injection. Therefore did not announce a fixed dividend policy.
Medtec have passed the mandate for share buyback, the company is ready to execute share buyback any time, when the company feel the need to do so, the company will do it immediately.
Medtec is trying to build a resilient supply chain, currently working on several projects and more business opportunities. It is expected that CAPEX will be higher in the coming year.
Update on current status of government stockpiling
Current orders are on a replacement basis, most orders are recurring orders. Also there are also price queries on open tenders.
Phase 1 of the expansion focuses on facemasks. Medtec started producing and selling USA made mask at the end of the year (December 2020). The management have observed that the selling of locally made mask slowed down as the demand is price driven. People are price sensitive to the prices of face masks, when offered a cheaper offer, consumers will choose the cheaper option. USA made mask are quite expensive, hence it is considered to be a niche market, and the demand is not huge.
The investment in USA is considered to be a test into USA market, the investment is made together with a local vendor in USA, and the investment is minimal.
When queried the proportion of sales contribution to total revenue, the revenue generated is minimal, and the investment is also minimal.
Medtec is in the PPE business for over 20 years, have been competing with Chinese brand in price and quality. The market is still expanding with or without vaccine. Many countries are diversifying source outside of China. This will benefit Medtec as Metec is one of the strongest PPE brand outside of China.
Utilisation rate remains very high, medtec expects very steady business and with large volume.
Medtec entered into Joint Ventures with buyers, as buyers will want to have assurance to their supply of facemask and PPE.
The key strategy will be brand awareness, more energy will be channelled to get more visibility. Medtecs Shield product will expect to start to launch in April 2021, and more products will come in 2 to 3 months’ time.
Status on the mainboard listing on SGX
No specific time line. The strong financial result will show confidence in the Medtec’s business model.
Guidance for financial year 2021
Unable to give specific numbers, William Yang have mentioned that DBS release a write up on the industry, and he thinks the report is quite good. Investors can take the report as a reference.
Medtec’s base line revenue and profit is there as orders are firm and recurring, the company is looking at further upside with growth initiatives.
Below will be the key information mentioned in the DBS research report.
Key summary of DBS report released on 3 March 2021
Revenue expect to decrease in FY2021 and FY2022 from US$ 400m to US$295m and US$154m respectively, which represents -26% and -48% year on year growth.
Net profit also decrease from US$ 132mil to 74.8m and 32.3m respectively, representing -43% and -56% year on year growth in net profit. mainly due to weaker demand for PPE and lower average selling price for Medtec’s product.
The main theme of the Q&A presentation revolves around sustainability of its growth. The management have plan to expand the line of products from facemasks and PPE to a more diverse product line: weekly disposable mask, spray, stylus pen, phone case and card holders. It is hard to understand the level of demand for such products. Personally will not be a buyer for any of the new products planned.
With a record revenue and net profit for Medtec in 2020, cash balance have ballooned to 82.1million, US 14.9cents. dividend announced was US 4.18 cents, representing 28% of cash position. Considering the strong financial position of the company, with trade receivables (49.3million) almost equal to the total liabilities (51.2million), the dividend declared for the current year is considered to be low. I am disappointed with the dividend amount declared by Medtec.