Brokers' take: DBS sees continued uncertainty for Medtecs; slashes target price

DBS Group Research on Wednesday (Mar 23) cut its target price for Medtecs International 546 to S$0.225 from S$0.93, after shifting its valuation methodology to a discounted cash flow basis from a price-to-earnings multiple basis.

The new target price implies a potential downside of 8.2 per cent from Medtecs' trading price of S$0.245 as at 3.17 pm on Wednesday. The counter was up 2.1 per cent or S$0.005 at the time.

The move comes as the research team sees continued uncertainty for the maker of personal protective equipment (PPE), even as the group expands its manufacturing capacity. Medtecs had missed DBS's previous forecasts due to lower global demand and a decline in average selling prices (ASPs) for PPE and face masks.

"While new Covid-19 variants did emerge, they did not appear to drive additional demand," said DBS analysts Woon Bing Yong and Ling Lee Keng.

The continued performance decline in the second half of 2021 has also highlighted the difficulty in sustaining its 2020 earnings momentum, the analysts noted.

FY2021 revenue had dropped 64 per cent year on year to US$144.2 million as one-off pandemic-driven demand dissipates. Meanwhile, full-year net profit plunged 87 per cent to US$17.3 million.

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Despite elevated demand for PPE deliveries in England, the group's revenue did not appear to increase - hinting at a potential loss of market share possibly to domestic PPE products, DBS added.

As its assumptions of stockpiling demand sustaining sales volumes and ASPs did not hold true, the research team has revised its FY2022 earnings estimates for Medtecs to a loss of US$1.5 million from a profit of US$38.6 million.

The research team is suspending its coverage of the stock due to an uncertain outlook and a reallocation of research resources.

DBS's report was prepared under the Research Talent Development Grant Scheme where the Monetary Authority of Singapore provides co-funding to groom research talent to initiate research coverage primarily of mid-small cap Singapore Exchange-listed companies.