The pandemic has thrown up a clear list of winners and losers last year.
Sectors that were badly hit included aviation, transport, tourism and hospitality, and companies within these industries were bogged down by plunging demand.
However, the winners included businesses in the medical equipment space, cloud computing companies and online payment outfits.
One of the best-performing stocks in 2020 was Medtecs International Corporation Ltd (SGX: 546).
The manufacturer of personal protective equipment (PPE) saw its share price soar by 2,500% from S$0.04 to S$1.00 last year as demand for its products shot through the roof because of the pandemic.
There is a good reason for that.
The group had reported a five-fold year on year jump in revenue to US$400.3 million and an impressive surge in net profit from just US$1.1 million in 2019 to US$131.7 million in 2020.
In addition, a final dividend of US$0.0418 was also declared.
However, shares of Medtecs recently plunged by 26% to hit a year-low of S$0.54.
Could this be an opportune time for investors to scoop up a bargain?
Government stockpiling effect
For its fiscal 2021 half-year (1H2021), Medtecs reported a 47.5% year on year decline in revenue to US$85.3 million.
As a result, net profit tumbled by 50.9% year on year to US$19.1 million.
The group attributed this to lower sales as governments had stockpiled sufficient quantities of PPE from the previous year.
In other words, governments had purchased much more than they needed to stock up last year, resulting in a sharp spike in Medtecs sales.
However, in 2021, demand has started to moderate.
Sturdy financials
Despite the weaker net profit, the group maintained a sturdy set of financials.
Cash and equivalents stood at US$62.7 million as of 30 June 2021 while total debt was just US$11.7 million.
Medtecs also generated a healthy free cash flow of US$21.7 million for 1H2021.
New products and initiatives
The group has continued to grow and expand its business by introducing new products and undertaking strategic initiatives.
A new line of antiviral products called Medtecs Shield was introduced this year.
These products comprise masks, handphone cases and antiviral sprays that incorporate nanotechnology and can help to kill bacteria and viruses.
Medtecs is selling these products through major e-commerce sites such as Alibaba (SEHK: 9988) and Amazon (NASDAQ: AMZN) as well as through convenience and department stores.
In March, Medtecs had entered into a joint venture with ACO International Limited to build a fully integrated product manufacturing and distribution platform for PPE.
Meanwhile, the company has also entered into several agreements with the Ministry of Health in Cambodia to supply it with much-needed PPE and other products and hopes to position itself as the government’s national stockpiling partner.
Elsewhere, the group has taken some steps to expand into the business-to-consumer (B2C) services with its CoverU branded protective equipment and disease prevention products.
Growing the business for the future
The pandemic has greatly helped to raise awareness for Medtec’s PPE and range of products, helping the group to position itself well to take advantage of these new trends.
Even though vaccination rates are rising across the world, the new Delta variant is threatening to spur another wave of infections in many countries.
This development should keep demand for PPE higher than the pre-COVID norm.
Governments need to eventually replenish their stockpiles, which should keep demand for Medtec’s products high.
The group is actively in talks with key industry players to develop new products and broaden its product portfolio to include gloves, syringes and rapid test kits.
Plans are in place to secure long-term supply contracts with major purchasing organisations, and the group will also continue to expand its sales channels through social media.
Get Smart: Demand should stay resilient
2020 was a breakthrough year for Medtecs as the outbreak of the pandemic led to unprecedented demand for its PPE.
Management believes that stable growth can be expected for this year and that it will be a challenge to exceed last year’s exceptional performance.
Demand for PPE should remain resilient as hygiene standards around the world remain elevated.
At the last traded share price of S$0.54, Medtecs is trading at an annualised price-earnings ratio of just 5.7 times and a price to free cash flow of around five times.
The stock’s valuation may look low now. However, if earnings and free cash flow continue to decline, the ratio may rise in the future.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
