DBS Group Research has initiated coverage on Medtecs International with a “buy” recommendation and a target price of $1.30, representing a 43% upside on the stock’s last traded price of 90.5 cents.
Analysts Yong Woon Bing and Ling Lee Keng says the stock is trading at a compelling value of 6.8x blended FY2021/FY2022F price-to-earnings (P/E) and that their target price estimates are based on 9.5x blended FY2021/FY2022F earnings.
“Our scenario analysis also values Medtecs at a range of 80 cents to $1.66,” they write.
“We believe that Medtecs trades at an attractive value, with cash holdings possibly forming about 35% of its market capitalisation by end-FY2021. In addition, Medtecs trades at a discount from multiple valuation angles,” they say.
SEE: Medtecs partners Taiwan-listed Mytrex Health Technologies to expand presence in international market
“The Group is valued below both its 5-year mean forward price/earnings (P/E) of 10.8x and 2-year pre-COVID mean P/E of 19.2x. The stock also trades at a discount to the five-year peer average forward P/E of c.16x,” they add.
The group’s transition to self-branded product sales are also seen as a positive as Yong and Ling believe it could mitigate lower post-pandemic demand.
For more stories about where the money flows, click here for our Capital section
“We expect Medtecs’ average selling prices (ASPs) and sales volumes to remain at 90% and 60% above pre-Covid levels, boosted by a higher proportion of sales of self-branded products and new customer relationships formed during the pandemic. As such, FY2022F earnings are expected to be 28.6x times that of FY2019,” they note.
The group’s large cash pile of well over US$100 million ($133.6 million) also hints that merger & acquisition (M&A) activity in a post-pandemic world is in the works. Alternatively, Yong and Ling see that the group may reinstate its previous dividend policy of paying between 25%-50% of earnings.
However, the analysts have assumed a conservative 10% payout ratio from FY2021F which represents 2% of FY2021F yield or a distribution per share (DPS) of 1.89 cents.
As at 1.55pm, shares in Medtecs are trading 10.5 cents higher or 11.6% up at $1.01.
