1. Describe Medtecs’ financial performance over the past few years. What strategies have you put in place to maintain or accelerate this growth trajectory?
Medtecs International Corporation (Medtecs) is a leading personal protective equipment (PPE) and hospital service provider. The group’s three main lines of business include original product manufacturing,hospital services, and trading and distribution. Headquartered in Taiwan, the group has manufacturing facilities in the Philippines, Cambodia and China, and is a key supplier to global PPE companies, exporting to over 30 countries in Europe, USA, Southeast Asia, North Asia and Australia. Medtecs has seen consistent growth over the years, across the Philippines, Taiwan and Cambodia. We stepped up in market development, expanded customer and supplier base through various e-commerce platforms, and mobilised the group’s production sites to increase efficiency. This enabled us to capitalise from the Covid-19 pandemic. Revenue rose 4.74 times while net profit increased by 198 times for 9M2020 ended September, versus the same period last year. Our enhanced capabilities enabled us to meet market demand with our “source and sell globally” strategy to supplement our products with those from third-party vendors, the use of e-commerce platforms and data analysis to source for potential customers and new vendors, leveraging our corporate brand to develop our CoverU line of PPE, and securing recurring orders while cultivating long-term relationships with customers. Going forward, we will continue to execute these strategies to ensure sustainability and maintain flexibility over our working capital and production resources and at the same time, meet our clients’ needs.
2. Could you elaborate on Medtecs’ strategies for its three main business lines.
First, manufacturing (89% of 9M2020 revenue) — supply to PPE buyers worldwide by exporting to over 30 countries in Southeast Asia, North Asia, US, Australia and Europe. We plan to increase productivity through brand franchising and potentially through mergers & acquisitions. We expect to further increase our proportion of sales for Medtecs branded products from 65% currently. Our new subsidiary, Medtecs USA, was set up in October 2020 and will cater to demand in the US market.
Next, hospital services (4% of 9M2020 revenue) — provide integrated 3L Service for example leasing of linens, laundry services, and logistics support to 24 hospitals in Taiwan and 32 hospitals in Philippines. We have expanded the supply of PPE to over 200 hospitals in Taiwan and Philippines. We expect to add more medical consumables and devices as our product offerings to these customers.
Thirdly, trading &distribution (7% of 9M2020 revenue) — critical as a stand-alone profit centre and provide auxiliary support to other divisions. We have stepped up local market penetration efforts by participating in the bidding of linen products-related projects and engaging large pharmaceutical chain stores to sell Medtecs products in Taiwan and Philippines. We are also a key partner for Taiwan’s and Singapore’s national PPE stockpiles. With multiple distribution centres in US, Europe, and Japan, we are able to provide uninterrupted business-to-consumer (B2C), business-to-business (B2B) and business-to-government (B2G) factory-to-door delivery services.
3. Who are some of Medtecs’ existing clients?
With our strong operating track record of 30 years, we have long-standing relationships with key customers such as Premier Inc, ST Logistics and Direct Supply. Key hospitals that we supply to include the National Taiwan University Hospital (NTUH), Mackay Memorial Hospital in Taiwan, Clinica Antipolo Hospital & Wellness Center and De Los Santos Medical Center in the Philippines.
We distribute on three major e-commerce platforms for the trading and distribution segment. In Taiwan, the group distributes to 100 corporate clients, 400 pharmaceutical stores and 6,000 convenience stores including 7-Eleven and Cosmed. In the Philippines, we distribute to 300 corporate clients, 100 hospitals and 2,000 chain stores including South Star Drug, Mercury Drug, 7-Eleven and Robinsons Supermarket.
4. Medtecs has unveiled plans to fully automate its manufacturing processes. How is this progressing?
We have made good progress to systematically automate our manufacturing processes. In 2019, we automated production lines for disposable surgical shoe covers and installed an additional five sets of suspension systems in our factories in Cambodia to improve the production efficiency of coveralls.
Medtecs is on track to realising our target of installing eight sets of suspension systems at the Cambodian factories from 2017 to 2020 for improved production efficiency. As of Dec 31 2019, six sets have been installed, and the efficiency of certain equipment has increased by 25% to 45%.
5. What strategies have you put in place to meet the increased demand for personal protective equipment (PPE) following Covid-19?
We have implemented measures to increase production capacity in response to the surge in demand. These include increasing round-the-clock shift workers for uninterrupted output, converting idle plants into additional production bases, supplementing existing production lines with additional machines and equipment, increasing automation and process control for improved efficiency and outsourcing manufacturing of non-critical parts of the products.
To ensure sustainability, the group has decided not to increase output with large capital expenditures. Instead, we adopt our “source and sell globally” strategy where we source from reputable suppliers to meet the demands from our clients. We are in talks with suppliers to form potential strategic partnerships to minimise supply chain disruptions. This strategy provides flexibility in working capital and production resources while ensuring that our clients’ needs are met.
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6. Are there plans to expand geographically beyond Medtecs’ current key markets?
The group aims to continue to grow its market in the US, Europe and Asia Pacific regions. Specifically, through Medtecs USA, the group will increase its market share in the US by supplying locally-manufactured facemasks starting in 1QFY2021. Local domestic markets in Asia Pacific such as Singapore, the Philippines and Taiwan remain key growth markets for the group.
7. What differentiates Medtecs from its competitors?
Established in 1989 in the Philippines, Medtecs has a solid operating track record of over 30 years, with a strong reputation and corporate brand. We have been a key supplier to global PPE companies for decades, and pride ourselves on having a multitude of certifications, industry recognitions and awards. We also have over 6,000 workers trained in the manufacturing processes of PPE, which we believe is not readily available globally now.
We export to more than 33 countries and have established worldwide distribution capabilities with multiple distribution centres in Japan, US and Europe. Through partnerships with trusted couriers such as DHL and FedEx, we have launched Medtecs Express delivery service, which delivers door-to-door PPE for retail customers and supports our growth via B2B and B2C e-commerce platforms.
We have a scalable and sustainable business model, tapping into our network of reputable suppliers to meet global demand without the need for additional capex. As a key partner to the national stockpiling of Taiwan and Singapore, we plan to explore supplier partnerships with governments worldwide.
8. How do you expect global demand for PPE to remain or change after Covid-19?
The Covid-19 pandemic disrupted the PPE industry value chain with the unprecedented surge in global demand for PPE. We believe that the demand for PPE will continue to grow post the pandemic as governments and hospitals see the need to stockpile critical PPE supplies for future needs.
We believe that Medtecs is well-positioned to provide PPE stockpiling services for states and large institutions. Our diversified regional production facilities and warehouses, combined with our experiences helping the Taiwan government procure, manage and replenish, its national strategic stockpile of PPE on a rolling basis since 2011, make us an ideal partner for those seeking to ensure their supply of PPE in times of national health crises going forward.
9. What are some of the key Environmental, Social, and Corporate Governance (ESG) factors that are material to the group? How do you address these factors?
Medtecs has identified four key areas, namely supplier management, automation, environment and energy as well as employee training and education.
Supplier management is crucial to the group’s procurement processes, operational efficiencies, and cost reductions, which impacts our business growth and value to shareholders. We have in place supplier evaluation and assessment policies and procedures, to ensure sound procurement processes, cost reductions, and optimised performance.
We also aim to increase productivity by systematically automating manufacturing processes and enhance employee training and education programmes to remain competitive. The group will also remain in strict compliance with relevant laws and regulations for energy conservation, carbon reduction, and adopt an effective approach to energy consumption.
10. What do you think investors may have overlooked about Medtecs’ business?
We believe that Medtecs’ ability to seize growth opportunities on a timely basis brought about by the sudden surge in PPE demand as a result of Covid-19 is testament to our brand name, manufacturing and supplier network as well as distribution capabilities. Over the past 30 years, we have worked hard to build a strong track record and earned trust from our business partners and key stakeholders.
We believe that the group’s effort and investments in recent years to enhance our operations and strengthen our supplier and distribution network will allow us to tap multiple avenues of growth to support the burgeoning demand for PPE, which we are confident will be sustainable even when a safe and effective vaccine for Covid-19 is developed. Backed by Medtecs’ sustainable and scalable business model, we are ready to embark on our next phase of growth which is to be a global procurement platform for medical consumables and PPE.
Emelia Tan is a research analyst with the Singapore Exchange
