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CGS-CIMB initiates 'add' on Vicplas with TP of 27.5 cents, highlights medical manufacturing segment

Lim Hui Jie
·2-min read

CGS-CIMB analyst William Tng has initiated coverage on Vicplas with an “add” call and a target price of 27.5 cents.

CGS-CIMB analyst William Tng has initiated coverage on Vicplas with an “add” call and a target price of 27.5 cents.

In a Jan 25 note, Tng points out that the company is tapping into the “medical contract manufacturing space” for growth.

He projects a 10.8% earnings per share (EPS) compound annual growth rate (CAGR) over FY2022-2024 for Vicplas, driven by growth in its medical business.

Vicplas noted that the Medtech contract manufacturing market’s revenue size is expected to grow by a CAGR of 11.4% from 2019’s figure of US$52.9 billion ($71.1 billion).

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The key drivers behind this growth are an ageing population and increased demand for improved healthcare in developing markets.

This is also in addition to an increased willingness by product owners to outsource manufacturing to trusted partners that can fully support product and process innovation, Tng points out.

To benefit from the industry growth, Vicplas aims to have a 7,000 sqm plant extension ready by end-2HFY2022 in Changzhou, doubling its current capacity.

According to its FY2021 results presentation, the company is also considering the feasibility of acquiring or setting up a new plant near the US to provide additional manufacturing options to new and prospective customers.

Separately, Tng also notes that Vicplas’s pipes and pipe fittings business is also seeing a recovery.

This is in line with the management’s guidance that the construction industry in Singapore is gradually recovering from the impact of Covid-19 though labour shortages and supply chain disruptions remain key risks.

He says “Other than the residential property market, Vicplas has also focused its efforts on government-driven infrastructure spending. This segment’s profit grew to $3.2 million in FY2021 from $2.6 million in FY2020.”

Moving forward, he believes Vicplas will retain its earnings to grow the medical business, and expects dividend yields of 2.3-2.8% over FY2022-2024.

Some re-rating catalysts for the stock are stronger-than-expected earnings due to new customer and/or product wins in FY2022-2023, while downside risks include production disruptions from movement restrictions due to measures to contain the spread of Covid-19, and production disruptions due to power shortage at its China plants.

As at 1.56pm, shares of Vicplas are trading at 23 cents, with a FY2022 price to book ratio of 1.5 and dividend yield of 2.3%

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