DBS Group Research analysts Woon Bing Yong and Ling Lee Keng have maintained their “hold” call on Medtecs International as the company saw an 87% y-o-y decline in earnings of US$17.3 million ($23.5 million) for the FY2021 ended December.
The lower earnings were attributable to the lowered demand amid the improving Covid-19 situation.
“The continued performance decline in 2HFY2021 has brought about concerns on the longer-term sustainability of Medtecs’ earnings. Despite elevated demand for personal protective equipment (PPE) deliveries in England, revenue for Medtecs did not appear to increase. This could hint at a potential loss of market share, possibly to domestic PPE producers,” write the analysts in their March 23 report.
As it is, Medtecs missed the analysts’ previous estimates due to lower global demand and lower average selling prices (ASPs) for their PPEs and face masks.
There did not seem to be additional demand in spite of the emergence of new Covid-19 variants, they note.
“Going forward, we see continued uncertainty for the stock, even as it expands its manufacturing capacity. We are suspending coverage of Medtecs due to a reallocation of coverage resources,” they write.
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DBS is the only house covering the stock, with the analysts identifying three different scenarios based on different levels of post-Covid PPE stockpiling demand.
Based on the current trajectory, Woon and Ling are expecting Medtecs to report losses in the FY2022.
“As such, we have shifted our valuation methodology from a P/E multiple basis to a discounted cash flow (DCF) basis,” they add.
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To this end, Woon and Ling have slashed their target price estimate on the counter to 22.5 cents from 92 cents previously.
Furthermore, key risks to Medtecs’ share price include the quicker-than-expected vaccine distribution progress, low levels of post-pandemic stockpiling, competition from domestic suppliers, and higher raw material prices.
As at 3.52pm, shares in Medtecs are trading 0.5 cent higher or 2.08% up at 24.5 cents, or an FY2022 P/B of 0.5x with no dividend yield.
