Pressured by higher costs
- FY22 net profit of S$8.8m (-15.0% yoy due to higher operating costs) was in line with our expectations at 98.2% of our full-year forecast.
- Going into FY23F, Vicplas is working to clear the order backlog from FY22 due to the Covid-19 lockdowns in China.
- Reiterate Add with an unchanged TP of S$0.27.
2H22 revenue improved, but higher costs dragged down net profit
2H22 revenue of S$67.6m (+6.8% hoh; +17.6% yoy) was 56.2% of our FY22F forecast. This brought FY22 revenue to S$130.8m (+14.8% yoy). However, 2H22 GPM contracted to 51.9% (1H22: 53.3%; 2H21: 54.7%) due to increased operating costs (raw material costs, higher freight costs, higher utilities cost). 2H22 EBIT margin fell to 8.2% (1H22: 10.0%; 2H21: 11.1%). In FY22, Vicplas added more borrowings to finance working capital requirements arising from the higher revenue growth. Finance costs rose to S$0.5m (+73.2% hoh; +90.0% yoy). Hence, 2H22 net profit fell to S$3.8m (-23.8% hoh; – 29.4% yoy), which dragged FY22 net profit down to S$8.8m (-15.0% yoy), but still largely in line at 98.2% of our FY22F estimates.
Passing on higher costs but still in investment mode
In its medical devices segment, 2H22’s improved revenue of S$47.6m (+5.9% hoh; +20.1% yoy) was offset by higher operating costs relating to supply chain, Covid-19 disruptions, and business expansion. Vicplas is also scaling up its headcount and investing in medtech talents to meet future demand. We think this explains the +9.9% hoh (+20.1% yoy) increase in employee costs to S$20.9m. 2H22 EBIT for medical devices fell to S$4.53m (-20.5% hoh; -32.4% yoy).
Changzhou extension completed; new plant to be in Mexico
According to Vicplas, the Changzhou extension (Changzhou 2) was completed at end – FY22 and is expected to contribute to 1H23 revenue. Management also confirmed that the existing plant is fully utilised and there are new projects that will utilise plant 2. At the same time, Vicplas is also working to clear the order backlog arising from the impact o f the Covid-19 lockdown in 2HFY22. Vicplas is also actively negotiating for a site in Juarez, Mexico, which would be its fifth manufacturing location . We think that Vicplas will likely lease this site and capex requirements would only be needed for fitting and equipment. Management hopes that this new plant could be ready by end -Jun-24.
FY23F/FY24F net profit are unchanged, though EPS are reduced slightly by 0.01% due to the increased number of shares. We also introduce FY25F forecasts. Maintain Add given its EPS growth prospects. Our unchanged TP of S$0.27 is based on 11x CY23F P/E (FY17-22F average forward P/E). Re-rating catalysts: faster-than-expected project deliveries, stabilisation of raw material costs. Downside risks: more lockdowns in China affecting production, sharp cost increases impacting profits.