DBS Group Research analysts Woon Bing Yong and Ling Lee Keng have maintained their “buy” recommendation on Medtecs International Corporation as they see the company being “in for the long haul”.

Woon and Ling have also lowered their target price estimate on the counter to $1.25 from $1.30 based on 9.5 times blended FY2021/FY2022 earnings, which is Medtecs’ pre-Covid low price-to-earnings (P/E), they write.

“Our target price was revised down as we adjusted our base case assumptions for the Hospital Services and Trading & Distribution segments which were slightly too optimistic. This was also the reason behind our marginal 4% downward revision in FY2021 earnings,” they say.

“Our scenario analysis values Medtecs at 77 cents in a bear case and $1.60 in a bull case,” they add.

SEE:Medtecs partners Taiwan-listed Mytrex Health Technologies to expand presence in international market

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The brokerage is, so far, the only one covering Medtecs.

Medtecs’ record earnings of US$131.7 million ($175.4 million) and record revenue of US$400.3 million for the FY2020 ended December, came within Woon and Ling’s expectations, though the lack of a special dividend may have disappointed the market, they write.

Compared to Medtecs’ dividend of 5.03 US cents per share, representing a payout ratio of 21%, glovemaker Riverstone, which also saw a surge in demand during the FY2020, had a payout ratio of some 50%. For Medtecs, that would have been a dividend of 11.99 US cents per share.

“On this front, we believe Medtecs is looking to conserve cash to expand into new product lines or pursue M&As. While success for Medtecs’ expansion is not guaranteed, we believe this is important for the long-term sustainability of the group,” note the analysts.

Amid the improving pandemic situation, Woon and Ling believe that the market will “focus on the potential impact the improving pandemic situation may have on performance in FY2021.”

That said, “we think a better performance across all segments is likely on a y-o-y basis with 1HFY2021 looking stable compared to 2HFY2020,” they write.

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They have also noted that the higher deliveries in aprons, gowns, coveralls and face masks in England during the 4Q2020 may bode well for Medtecs, as orders for PPE “are still being delivered”.

“While England may not be the best representative of global PPE demand, the country is one of Medtecs customers. As such, it may offer a good idea of post-vaccination PPE demand with the UK making good progress on its vaccinations (over 20 million out of a population of 67 million have received at least 1 dose),” they note.

“In addition, average selling prices (ASPs) of PPE, while having inched down by an estimated 2-3% from 4QFY2020, remain healthy leading to our overall view of a stable 1HFY2021,” they add.

As at 2.22pm, shares in Medtecs are trading 1 cent higher or 1% up at 99 cents.