Medtecs strategises to be more than a one-hit pandemic wonder

AS nations struggled to deal with the Covid-19 crisis earlier this year, Medtecs International Corp - a Singapore-listed maker of surgical masks, medical coveralls and isolation gowns - was turning away orders for its products.

The Taiwan-headquartered firm, which counts ST Logistics as one of its biggest long-standing customers, was swamped by requests from existing OEM (original equipment manufacturer) customers to triple its supply. New customers, meanwhile, were asking for Medtecs' own branded products, which yield margins up to 10 times as high as OEM products. All this was unfolding as raw material prices were skyrocketing on a global shortage of personal protective equipment (PPE).

"It was really tough to decide which customers we were going to service. Do we abandon long-time customers for (new) high-margin customers?" said Medtecs executive director and chief executive William Yang in an interview with The Business Times.

"We had to decide fast and tried to entertain both ... We couldn't make everyone happy."

In the end, the Catalist-listed company managed to raise its output by 20 to 30 per cent for existing customers while grabbing the chance to make its own brand products for both old and new buyers. "We actually gave up tens of millions of dollars in profits (to honour our commitment to existing customers)," said Mr Yang, who has been with the firm since 2005. In 2018, he succeeded his father Clement Yang - Medtecs' founder and current chairman - as CEO.

Medtecs cranked up output with round-the-clock shifts and increased automation. It also converted idle plants into production bases. The company is now churning out 80 million medical masks and 18 million gowns monthly, from production facilities in Cambodia, China and the Philippines. Singapore, Taiwan and the Philippines are among its biggest markets.

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Mr Yang said Medtecs' "global source and sell" strategy also helped. Four years ago, the company began to grow its network of suppliers. "So, during pandemics, we don't have to spend extra time and resources to validate new suppliers, because we already have a full list of trustworthy suppliers to meet the surging demand. When the order volume is big, we still manage to deliver on time."

Medtecs-branded products, which made up a trifling 3 per cent of total output in 2019, accounted for 65 per cent of overall production in the nine months to September 2020. The three-decade-old OEM business has been overtaken by the OPM (Original Product Manufacturing) division.

The impact of this change in output on Medtecs' key metrics has been explosive. Net profit surged to US$85 million in the nine months ended September 2020, from US$426,000. Revenue increased to nearly US$290 million, from around US$50 million previously. The nine-month showing has significantly eclipsed 2019's full year report card of a US$1.2 million net profit and US$69 million revenue.

PPE - Medtecs' core product - made up 73 per cent of revenue by product type during the nine-month period, up from 64 per cent last year. Disposable surgical masks accounted for 18 per cent of revenue, from 0.2 per cent last year.

Expanding its presence

Asia is Medtecs' largest market, accounting for 44 per cent of the group's revenue by geography. Within Asia, the Singapore government is among the biggest revenue contributors this year.

About 35 per cent of group revenue came from Europe, followed by 15 per cent from North America.

Australia, a new market that is being driven by PPE demand from the local government, contributed 6 per cent to the company's topline.

Medtecs managed to land additional orders after it stepped up its e-commerce game. It has a presence across multiple platforms including Alibaba, Amazon and Lazada. Distribution centres spanning Japan, the United States, Canada and Europe help fulfil orders.

"We receive hundreds and thousands of enquires every month from customers from different parts of the world because we are doing e-commerce," said Mr Yang. "We are the number one vendor on Alibaba B2B platform for having the most transactions done."

Medtecs wants to expand its footprint in the US, which is seeing rising infections and higher rates of hospitalisations across the country.

Over a month ago, it incorporated a wholly-owned subsidiary - Medtecs USA Corp - in Delaware. According to Mr Yang, Medtecs is working with a US partner in North Carolina to produce and distribute its Medtecs-branded products across the country by end-year. The venture, if it pans out, will expand the group's global stockpiling network and support its goal of becoming a one-stop procurement platform.

The firm is also working on expanding its products beyond those serving medical purposes. These include "flight suits" and antiviral products and applications. "We'll have lots of new antiviral products because after Covid, we need more than just PPE. We can design or help to set up a (safe) environment or workspace," he said.

Beyond Covid-19

Indeed, for the likes of Medtecs, it is imperative to strategise beyond the current pandemic. The imminent Covid-19 vaccine rollout could slow demand for PPE as the outbreak comes under control.

Medtecs also supplies linen, laundry services and logistics support to over 200 hospitals in the Philippines and Taiwan, and so is not wholly dependent on the PPE business. But it has recently gained a wider investor following.

From its listing in 1999 to the end of last year, shares of Medtecs had attracted little interest and had generated a negative return of 87.8 per cent. This year, however, they hit an all-time high of S$1.85 in August. Last Friday, Medtecs shares closed at S$0.97. That puts the stock's total return since listing at 221.6 per cent, or 5.7 per cent per annum.

The recent weakness could be attributable to investors wondering if Medtecs was limited to being a pandemic wonder.

Mr Yang thinks not. "Face mask wearing is the new norm," he said. That and heightened government awareness on the importance of preparedness for an outbreak could sustain growth in the PPE space for at least the next five years, he said.

Medtecs is also hoping to capitalise on policymakers' efforts to stockpile PPEs to ensure they don't run out when needed. The company has put in place a rolling inventory management plan to replenish and replace PPE stockpiles. It has been doing this for Taiwan since 2011 and has been the national stockpiling partner for Singapore for 17 years.

"Doing stockpiling is not as simple as making and selling PPEs. You have to come up with a comprehensive turnkey solution to help the government maintain a good inventory level and maintain the shelf life at the same time," Mr Yang said.

He has shown his confidence by scooping up his first holdings in Medtecs shares. This month he forked out some S$922,000 to acquire one million shares.

There are other catalysts ahead for Medtecs' stock. Mid-November, the company disclosed that it was applying for a transfer to the mainboard and will be included in the MSCI Singapore Small Cap Index effective Nov 30 after market close.

On the plans to transfer to the mainboard, Mr Yang said : "Before Covid, the trading activity was not that big. This year, the (trading) volumes are a lot as we are undergoing a major change. If shareholders can know us better and understand what we're doing, I think it's actually very beneficial - and more healthy."