Resilience in the face of cost increases
? 1H22 net profit remained stable at S$5.0m (+0.6% yoy, -3% hoh) despite cost
increases and lack of Covid-19-related government subsidies.
? Management guided that its Changzhou plant extension (c.7,000 sq. m) is on
track for opening near end-FY22F.
? Reiterate Add with TP of S$0.28 based on 11x CY23F EPS, in line with its
FY17-22F average forward P/E multiple.
Continued growth momentum in 1H22 despite cost increases
1H22 revenue of S$63.2m (+12% yoy, +10% hoh) was in line with our expectation at
51% of FY22 forecast. Revenue rose due to increased orders for its medical devices
segment, and gradual recovery of the construction industry lifting demand for its pipe and
pipe fitting segment. Cost of sales rose to S$29.5m (+12% yoy, +14% hoh) due to
increase in raw materials cost for both segments. 1H22 net profit of S$5.0m (+0.6% yoy,
-3% hoh) was in line with our expectation at 45% of FY22 forecast. Net profit margin of
7.9% was impacted by start-up costs, higher raw material and energy costs, and the lack
of Covid-19 related government subsidies compared with previous periods. No dividends
were declared.
Changzhou plant extension on track
As Vicplas continued its transition into a medical-focused group, it commercialised new
projects and further expanded its global customer base in 1H22; this helped to increase
its medical segment revenue to S$45m (+11% yoy, +13% hoh). Higher operating costs
and labour shortages resulted in its earnings before interest and tax expenses (EBIT)
falling 15% hoh in 1H22 to S$5.7m (+6.1% yoy). Moving forward, Vicplas expects the
positive revenue momentum to continue, but at a more moderate pace given a higher
base. Key drivers for this business segment are an aging population, rising demand for
healthcare in developing markets, and increased willingness among product owners to
outsource their manufacturing.
Pipe business to benefit from more public housing unit launches
While revenue from its pipe and pipe fitting segment improved 14% yoy to S$18.3m in
1H22, EBIT declined 20% yoy due to higher raw materials and energy costs. Revenue
recovery in this segment will be reliant on public housing units to be launched over the
next two years, in our view.
Reiterate Add with TP of S$0.28 based on 11x CY23F EPS
We maintain our Add call with a TP of S$0.28 based on 11x CY23F P/E (FYT17-22F
average forward P/E). We project FY22-23F dividend yields of 2.3-2.8%. Potential rerating catalysts: stronger-than-expected earnings due to new customer/product wins in
FY22-23F, and more-than-expected public housing launches. Downside risks: further
production disruptions from Covid-19-related movement restrictions, and sharp increase
in raw material costs which will impact profitability.