Medical business to spearhead growth
? Vicplas has announced its leadership renewal plan, with Mr Walter Tarca, President of its medical business, assuming the role of CEO on 1 Aug 2022.
? We think the medical segment will drive growth for the company over FY22- 24F while the pipes segment continues its gradual recovery.
? Reiterate Add and TP of S$0.28. A re-rating catalyst is better-than-expected 1HFY7/22F results in Mar 2022.
Management renewal in place
Vicplas announced on 19 Jan 2022 the appointment of Mr Walter Tarca as Deputy Group Chief Executive Officer of the Vicplas Group effective 1 February 2022. Mr Tarca has been the President of the medical devices segment (Forefront Medical) since 2016. Mr Tarca will continue to work under the leadership of Mr Cheng Liang, the current Group Chief Executive Officer, during a transition period and will assume the role of Group Chief Executive Officer beginning 1 August 2022. This change of leadership is part of Vicplas’s succession plan.
Plans to grow the medical segment…
We believe FY22-24F performance for Vicplas will be driven by its medical business segment. Operating profit for this segment has grown over FY19-21. In FY21, the operating profit of the medical business was nearly 4x that of the pipes business segment. Return on asset (ROA) of this business segment has improved, with ROA of this segment 2x that of the pipes segment in FY20-21. Capex for the medical segment increased from S$4.65m in FY20 to S$5.82m in FY21. Vicplas targets to have a plant extension in China ready by end-2HFY7/22F and is looking to establish a production facility near the US in the next 18-
24 months.
… while pipes segment stabilises
We think that the pipes segment should continue its recovery trend in FY22F as construction activities have gradually resumed. The major risk for this business segment stems from the repeat of circuit breaker restrictions should the Covid-19 infection rate worsen, leading again to a halt in construction activities. We note that the public housing market is regulated in Singapore and Vicplas’s piping products comply with the regulatory requirements. Here, pricing alone is not the deciding factor. In addition, imported pipes are not necessarily cheaper given the logistics cost involved.
Reiterate Add
We reiterate our Add call and TP of S$0.28, based on 11x CY23F EPS, in line with the CY23F sector average P/E. Re-rating catalysts are stronger-than-expected earnings due to new customer/product w ins in FY22-23F. Downside risks include production disruptions from movement restrictions due to measures to contain the spread of Covid-19 and from power shortages at its China plants.