Most companies’ price charts for 2020 would have shown a big plunge in March and April, as the fear over the pandemic infected the market. But the price chart of Taiwan-based Medtecs International stood out for its dramatically different pattern.
Precisely because of the pandemic, demand for personal protective equipment (PPE), which the company sells, enjoyed a huge surge — with both higher volumes and selling prices lifting Medtecs earnings and share price throughout the year.
For FY2020 ended December 2020, Medtecs reported revenue of US$400.3 million ($538.6 million), up 480.4% over FY2019. Thanks to better economies of scale and a higher proportion of higher-margin products, Medtecs’ earnings in the same period shot up by a whopping 11,196.4% to US$131.7 million, versus FY2019’s US$1.16 million.
Medtecs’ shareholders were arguably the biggest beneficiaries of the pandemic. From as low as 4 cents on Jan 3, 2020, the price shot up to $1.85 on Aug 21. Almost overnight, Medtecs turned from being a low-profile stock with scant trading interest to one chased after by the market.
However, after vaccines for the virus became available, the initial euphoria lost some steam. From the peak, Medtecs’ share price has corrected to 93 cents as of March 31.
Bigger pie
In an interview with The Edge Singapore, William Yang, Medtecs’ deputy chairman, executive director and CEO, believes that demand for his company’s products remains stronger than before. He describes how he is still fielding enquiries from potential customers. For example, he describes some enquiries about placing orders with amounts of about 20-30 million pieces of PPE, including isolation gowns and coveralls.
Yang notes this enquiry is not an isolated one. Citing studies and investigations, he notes that the PPE market will grow for the next three to five years, with or without the Covid-19 vaccines, and at a rate of about 5–9% per year, even with the vaccine rollout. The company “still has lots of upside”, he says.
He is confident that as long as Medtecs can maintain its market share, it would be enjoying steady volume growth. However, he warns that the spike in average selling prices — seen last year when the pandemic spread rapidly, causing short-term shortage — are unlikely to be seen again. He believes prices will remain stable at the current levels, unless there is another major shutdown in China.
The pandemic has not only caused disruptions to the way many companies operate; it has also caused changes to Medtecs’ revenue mix. In FY2020, Yang points out, the proportion of revenue from manufacturing services increased to 88% from 77% in the preceding FY2019. In contrast, revenue from hospital services dropped to just 8% from 21%; the proportion of revenue from trading and distribution also halved to 2% in the same period.
Yang explains this was not because the demand for its hospital services fell, rather, it was because revenue from manufacturing increased at a much higher pace. While Medtecs used to do just original equipment manufacturing (OEM), with as much as 97% of the manufacturing revenue from this segment, it is now placing a lot more emphasis on selling products under its own brand, and selling directly to consumers too. Some 60% of the manufacturing revenue is from selling ownbranded products, with the OEM proportion down to just 40%.
Yang believes by doing so, Medtecs and its end customers are in a win-win situation as the middlemen layer is skipped, which means higher margins for the company, and better savings for the end-users.
However, Yang stresses that the focus on its own brand products does not mean Medtecs is ditching the OEM market entirely. In fact, the company has continued to service its pre-Covid customers and ramped up capacity for its OEM segment, while at the same time promoting the Medtecs brand. “The market is growing, the pie is getting bigger. [The OEM customers] are not complaining that we’re promoting our own brand, because they are already securing their existing customers and market share,” he explains.
Medtecs Shield
To capture a bigger share of the growing demand of protective equipment and medical consumables, Medtecs will try and tie up with key industry players to develop new product lines and broaden its PPE product range to include items such as gloves, syringes, rapid test kits, and medical devices such as ventilators and nebulizers.
For a start, Medtecs will soon introduce a new line of products under the brand Medtecs Shield, which comprises products including masks, handphone holders and antiviral sprays. These products, as described by Yang, are integrated with nanotechnologies that can kill viruses and bacteria.
“We actually have very high hopes on this product line, because it’s unique,” he says. He believes these products are needed by everyone, not just healthcare workers. “We’re targeting a seven billion population. And we don’t have any competitors because we are the only company in this world right now with comprehensive product lines and full sets of certificates and test reports,” says Yang.
These products, instead of being sold through traditional retail channels only, will be available via major e-commerce websites such as eBay, Amazon and numerous others. The company also sells its products on offline channels, such as 7-11 stores and Watsons, and has plans to set up distribution channels in regions like North America, Japan and Europe.
Supply chain resiliency
Moving forward, Medtecs said it will focus on creating sustainable business growth by making the best of its cash position and competitive strengths.
It’s also looking at pursuing long-term recurring orders, partnering up with key industry players via joint ventures, mergers & acquisitions, and strategic investments.
However, with trade tensions between the US and China ever-looming like dark clouds, Yang is aware that the supply chain network, once taken for granted, is threatened by these tensions.
This is coupled with weaknesses in the global supply chain uncovered by the pandemic, leading to a scramble to acquire medical supplies at the start of 2020. To ensure that its supply chain is not disrupted, Medtecs has announced multiple strategic alliances.
First, it entered a partnership with nonwoven filtration material supplier Mytrex in December 2020, which ensures a cost-effective and reliable supply of critical raw materials for PPE. Under the terms of the agreement, both companies will look at opportunities to collaborate in Taiwan, the Philippines, the US and other regions, which include colocating their plants to facilitate the vertical integration of PPE production operations. This ensures product quality and minimises supply chain disruption.
The agreement, according to Medtecs, is in line with various governments’ policies of localising supply chains to facilitate the local production of PPE to cater to demand in their respective markets. As such, Medtecs will also be colocating its production lines in its production facilities in the Philippines.
It also aims to secure long-term supply contracts with major group purchasing organisations worldwide. To that end, it entered into a joint venture agreement in March with ACO International, to incorporate a joint venture company, Resilient Medical, in Singapore.
The company aims to build a fully integrated product development, manufacturing, and sales and distribution platform, and ACO will assist in the site selection for the construction of a PPE production facility. The joint venture, according to Medtecs, will allow it to expand manufacturing capabilities and product offerings and ultimately, its revenue streams.
Furthermore, Medtecs notes that ACO has “connections with a significant network of health systems, hospitals, and healthcare-related providers to capture increased market demand for PPE products worldwide and specifically, the US market.”
Yang adds that in order for the industry to better understand what the company can do, “it’s easier for us to partner up with these local key players who have connections in pharmaceutical, in hospitals sectors. With their help, we can grow much faster”.
Dividend vs growth
For investors, the biggest question is whether Medtecs’ share price, which jumped about 23 times since the pandemic started last January, can continue its meteoric surge. Yang believes that with all the plans in place waiting to be executed, the company’s growth is sustainable. He does say that the market will get “a better understanding of the trend and what’s going on” after the first quarter results for FY2021 are released.
In a sign of the company management’s confidence, Medtecs paid out its first dividend in 13 years, at US$0.0085 per share. This represented a jump of more than eight times since it last paid out its last dividend in 2007, at only US$0.001 a share. Yang adds that Medtecs board, chaired by his father Clement, is mulling over whether to put in place a dividend policy to give shareholders more certainty. “We’ll be more than happy to reward our shareholders,” he says.
However, he notes that the dividend payout has to be balanced with the need to build up the company’s war chest as he “sees so many opportunities, and the situation’s changing very fast so we have to reserve these resources to grasp these opportunities”.
