MEDTEC’s stock price surged by 61% on 18 Oct 2022! This was mainly driven by the news of new variant of Omicron BQ1 as this virus spread rapidly across the United States. In addition, there is another new variant of Omicron, XBB has also wreaked havoc in Bangladesh, Singapore, Germany and Denmark. Today, let me share with you the future prospects of Medtecs International Corporation Limited.
Background
Medtecs International Corporation Limited (the “Company” or “Medtecs“) is the world’s leading provider and distributor of personal protective equipment (PPE) and a trusted multi-national PPE stockpiling solutions provider to governments and group purchasing organizations around the world.
Medtecs and its subsidiaries (collectively, the “Group“) commenced operations in 1989 and has since established a strong presence in the United States, Europe, and Asia Pacific.
The Group has offices and facilities spanning across Asia including Singapore, Taiwan, the Philippines, the People’s Republic of China, Cambodia, and the United States of America for expansion into the global domestic PPE and medical consumables market. Currently, the Group’s headquarters is located in Taipei, Taiwan.
Medtecs is dual-listed on Singapore Exchange Limited (SGX: 546) and Taiwan Stock Exchange (TWSE: 9103).
Business Model
The manufacturing segment produces and sub-contracts a wide range of medical consumables, including patients’ apparels, disposable surgical masks, boot covers and surgical gowns, underpads, adult diapers, crochet blankets, bed linens and medical bandages. These medical consumables are supplied to large medical multinational corporation distributors, pharmaceutical companies and hospital groups in the USA and Europe.
The hospital services segment provides laundry and leasing services to various hospitals that are outsourcing its non-critical functions.
The distribution segment is involved in the marketing of Medtecs-branded medical consumables to hospitals, pharmacies and other end users in Asia Pacific. The Group also leverages on its distribution network to market other branded medical supplies and equipment such as wheel chairs, syringes, nebulizers and blood pressure monitors.
Management Background
Mr Clement Yang Ker-Cheng, Chairman of MEDTECS INTL
Mr Clement oversees the overall management, strategic planning, product development and marketing of the Group. He was the Chief Executive Officer of the Group’s operations since 1990 until 2 May 2018 when Mr. William Yang Weiyuan took over as the Company’s Chief Executive Officer. Mr. Yang is a member of the Nominating Committee. Under his leadership, the Medtecs Group has grown into an integrated healthcare services provider and original product manufacturer of a wide range of medical consumables for large multinational healthcare distributors, pharmaceutical companies and hospital groups around the globe. Prior to founding the Medtecs Group, Mr Yang served as senior vice president of the Fu-I Industrial Group of companies, and the chief executive officer of Shentex Corporation. From 1986 to 1989, he was director of Taiwan Cotton Weavers Association. Mr Yang was president of the Taiwanese Business Association of Subic Bay and now serves as Chairman of the Cambodia and Philippines committees of the Chinese-Philippine Business Council as well as the Founding Chairman of the Confederation of Philippine Manufacturers of PPE. Mr Yang has more than forty years of experience in the textile manufacturing industry, with majority of those years devoted to the development of medical consumables for the healthcare industry.
MEDTEC’s 1H 2022 Half Yearly Results
Revenue
Revenue from the Manufacturing division decreased by 71.7% from US$71.7 million in 1H21 to US$20.3 million in 1H22 due to lower sales of PPEs and facemasks to customers from decrease in global demand. Revenue from the Hospital Services division also decreased slightly by 4.2% from US$7.6 million in 1H21 to US$7.2 million in 1H22 due to non-renewal of some hospital contracts in Taiwan and Philippines. Revenue from the Trading and Distribution division decreased by 33.0% from US$6.0 million in 1H21 to US$4.0 million in 1H22 arising from lower domestic sales in Taiwan.
Profitability
The Group’s gross profit decreased by 72.5% from US$30.8 million in 1H21 to US$8.5 million in 1H22 mainly from lower demand and ASPs for PPE and facemasks. Gross profit from the Manufacturing division decreased by 76.7% from US$27.6 million in 1H21 to US$6.4 million in 1H22 due to decline in orders from existing customers and lower ASPs for PPE and facemasks. Gross profit from the Hospital Services division decreased by 14.3% from US$1.0 million in 1H21 to US$897,000 in 1H22 from lower revenues and higher linen costs. Gross profit from the Trading and Distribution division decreased by 46.3% from US$2.1 million in 1H21 to US$1.1 million in 1H22 due to decline in demand and ASP of PPEs and facemasks in the global market.
Other operating income increased significantly by 5,600.0% from loss of US8,000 in 1H21 to income of US$440,000 in 1H22 primarily due to foreign exchange gains during the period arising from effective management of non-USD denominated foreign currencies.
Distribution and selling expense increased slightly by 0.7% from US$5.9 million in 1H21 to US$6.0 million in 1H22 due to increase in storage fees from warehouses for our e-Commerce business. Administrative expenses increased by 27.2% from US$5.6 million in 1H21 to US$7.1 million in 1H22 due to higher corporate expenses and additional operating expenses from our new glove factory in Cambodia.
Financial expenses increased by 5.8% from US$498,000 in 1H21 to US$527,000 in 1H22 due to increase in borrowings and interest rates.
Income tax expense decreased by 314.6% from US$198,000 in 1H21 to an income tax benefit of US$425,000 in 1H22 due to the net operating losses incurred by subsidiaries.
Overall, the Group’s net profit after tax decreased from US$18.5 million in 1H21 to a net loss after tax of US$3.9 million in 1H22 due to lower sales and global decline in ASPs of PPEs and facemasks, and higher operating expenses.
Cash Flow and Balance Sheet
The Group’s total assets increased from US$215.5 million as at 31 December 2021 to US$227.5 million as at 30 June 2022 due to increase in cash and fixed deposits from various loan availments and collections of receivables during the period. Property, plant and equipment increased from US$32.1 million as at 31 December 2021 to US41.0 million as at 30 June 2022 from the ongoing construction of the glove factory in Cambodia and some additional machineries in Philippines.
The cash outflow for purchases of property increased from US$2.7 million in 1H21 to US$6.8 million in 1H22 because of additional capital expenditures for the glove factory construction.
The Group’s term loans and bank loans increased by US$24.5 million from US$9.3 million as at 31 December 2021 to US$33.8 million as at 30 June 2022 due to additional borrowings during the period.
The cash inflow of US$7.1 million from financing activities in 1H22 was due to higher loan availments, net of payment of interest, lease, cash dividends, share buybacks and new fixed deposits availed during the period.
Futures Prospect
Looking ahead to the second half of the year, we see a continued decline in demand for PPEs and facemasks as the world gradually recovers from lockdowns and disruptions related to the pandemic. The Group remains vigilant in disease prevention and continues to come up with stock-piling solutions to the government and institutional customers to ensure a stable supply of our protective products, especially with the emergence of new and more infectious coronavirus variants and the Monkey Pox outbreak.
As part of our growth strategy, we have substantially completed a fully integrated manufacturing facility for nitrile gloves in Cambodia and expect to start commercial operations in the 3 rd quarter of 2022. We also have completed vertical integration of the facemask production facility in the Philippines. This ensures product quality and minimizes supply chain disruption. as we work on becoming a one-stop total solution provider for healthcare needs.
The Group will capitalize on our expanded production capacity of key products such as facemasks, isolation gowns, and other protective apparels to maintain our competitiveness in terms of quality and cost. The Group will continue to accelerate automation of production facilities while at the same time, outsource non-critical production processes.
The Group will make full use of e-commerce platforms through the business model of “Source and Sell Globally”, which will drive customer engagement and help the Group source for better-quality raw materials and suppliers of PPE. The Group has continued to grow the Medtecs and CoverU branded protective equipment and disease prevention products as we strengthen our business to consumer (B2C) services both through e-commerce platform and through retail distribution hubs like drug store, convenience stores and supermarkets.
The Group has capitalized its manufacturing presence in the Philippines as it has several stockpiling contracts for PPEs and military uniform with the government. We have successfully partnered up with a local distributor and key developer of high-end medical devices such as handheld ultrasound devices, and expect to launch these products in the Philippines in the next few months.
The COVID-19 pandemic has increased awareness and demand for the Group’s healthcare products and PPE. With the above-mentioned sales and operational strategies, the Group will continue to build awareness for its own brand, develop and expand sales channels, while at the same time, focus on maintaining our competitiveness as a trusted original equipment manufacturer for medical institutes and healthcare providers. The Group remains and will continue to strive to be in the forefront of safety and disease control and management with our high-quality PPE and healthcare related products.
Technical Analysis
Resistance Level: SGD0.290, SGD0.250, SGD0.215
Support Level: SGD0.180, SGD0.100
Based on the stock daily chart of MEDTECS INTL (546), MEDTECS has formed a long engulfing candlestick and broke a previous support. If the momentum continues, MEDTECS might have a chance to test the next resistance at SGd0.215 and moves higher. Alternatively, if MEDTECS’ price fails to stand firm above support price SGD0.180, it implies the continuation of downtrend movement and plunges towards SGD0.100.
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