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VicPlas: Navigating Growth and Expansion Challenges in FY 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  All right, so we're diving deep today into VicPlast International.
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  We've got a whole stack of documents about their financials for the first half
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  of their fiscal year 2025.
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  Yeah, their corporate presentation, media release, and the full results announcement. A lot to sift through.
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  Definitely. But that's why we're here, right? To give our listeners the key
• 0:25
  takeaways without overwhelming them.
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  We want to figure out what's driving VicPlace's performance and where things might be headed.
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  Absolutely. We want to give a clear, concise picture of their financial health,
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  pulling out those crucial numbers, what they actually mean, and what the company's
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  saying about the future.
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  Perfect. So let's just jump right in. Big picture first.
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  Overall revenue for VicPlace in the first half of fiscal year 2025 landed at
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  $54.3 million Singapore dollars.
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  Up 6.4% from the $51.1 million they brought in during the same period last year.
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  A solid increase on the revenue front.
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  Yeah, definitely a positive trend. But what really caught my eye was what happened with their profit.
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  Net profit before tax shot up by a huge 82.3%. It went from just $0.3 million
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  Singapore dollars to a full $0.5 million.
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  That's a pretty dramatic improvement in pre-tax profitability.
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  And it suggests a strong underlying operational leverage in their existing business,
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  even with all those expansion costs we'll get into.
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  Absolutely. That's a massive jump. But then looking at net profit after tax,
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  it only increased by 9.4 percent, reaching point two four five million Singapore
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  dollars compared to point two to four million the previous year.
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  So why the difference between those pre-tax and after-tax figures?
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  Well, often that boils down to taxes. And in VicPlace's case,
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  their income tax expense went up quite a bit.
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  The results announcement specifically pointed to accruals they made for income
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  tax related to their new plant in Mexico. Ah, so even though their underlying
• 1:57
  profitability got much better, a bigger tax bill kind of ate into those gains.
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  And that's why the after-tax profit didn't see as big of a percentage increase. Got it.
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  We also see a slight bump up in their adjusted EBITDA by about 9.5% to 4.4 million
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  Singapore dollars from 4 million.
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  This metric, which gives us a better view of their core operational profitability,
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  is also moving in the right direction.
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  Now, we know VicPlus has two main business segments, medical devices and pipes and pipe fittings.
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  Let's break down the performance of each of those. Sounds good.
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  The segment view can definitely give us a clearer understanding.
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  Starting with medical devices, this division was really the engine behind that
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  revenue growth we talked about.
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  They saw a really significant increase of 10.5%, reaching $35 million Singapore dollars.
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  Up from $31.7 million in the same period last year. And the company attributes
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  this growth to higher orders from their medical device customers as they've
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  been adjusting their inventory levels in the wake of the pandemic.
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  Makes sense. Sort of a post-pandemic restocking effect going on there.
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  Now, even with that strong revenue growth in medical devices,
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  the segmental result, which is the profit or loss of the division before we
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  factor in corporate overheads, interest and taxes, was still negative.
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  Interesting. But importantly, it did improve a lot.
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  The loss shrank by 77.4%, coming in at negative 0.4 million Singapore dollars,
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  compared to a loss of 1.6 million in the first half of FY 2024.
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  So less in the red, definitely moving in a better direction.
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  OK, so getting better but still not profitable. Yeah.
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  Why is that? What's keeping them from turning a profit in this segment despite
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  those higher sales? So there are a few things happening here.
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  VicPoz had to deal with increased operating costs related to expanding their
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  Changzhou plant in China. Right.
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  They also had costs tied to new business development activities.
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  And then on top of that, you've got the significant startup expenses for their
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  brand new manufacturing facility in Juarez, Mexico.
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  So these investments, while obviously meant to fuel future growth,
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  are putting a bit of a drag on their current profitability. Exactly.
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  They're offsetting some of those revenue gains. And it raises a question about
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  when these investments will actually start contributing positively to the bottom line.
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  Yeah, I see what you mean. It seems they're playing the long game,
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  investing now for potential returns down the road.
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  And speaking of that, the report mentioned that the Mexico plant is expected
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  to start contributing to revenue in the second half of FY 2025,
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  and they've already lined up new projects for it. That's definitely a key area to watch.
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  How quickly can they get that plant up to speed and start generating returns?
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  And it seems they're not just focused on Mexico. The company emphasized their
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  efforts to build new capabilities, secure those future contracts,
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  and get that Mexico plant fully validated and operational.
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  But they also talked about growing momentum in their in China for China business.
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  Right. So growing both internationally and within the Chinese market.
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  Yeah, it's a two-pronged approach. Okay. Makes sense.
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  Let's move over to the pipes and pipe fitting segment. This one's a bit of a different story.
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  Revenue actually dipped a little, down 0.4% to $19.3 million Singapore dollars.
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  From $19.4 million previously. Not a massive drop, but still it's moving in the wrong direction.
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  Right. And the company said this slight decline was due to what they called
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  a prudent approach to balancing sales against increasing credit risk exposure.
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  What exactly does that mean? Essentially, in this economic environment,
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  a lot of companies are getting more cautious about extending credit.
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  So VicPlus is probably being more selective about who they sell to,
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  maybe tightening up their payment terms.
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  And that can have a short-term impact on revenue, but also helps protect them
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  from bad debt down the line.
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  Okay, so a bit of a trade-off there, but it's understandable given the current
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  economic uncertainties.
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  How did this cautious approach affect the profitability of their pipes and pipe
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  fitting segment? Well, this segmental result here decreased by 13.2 percent
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  to 3.6 million, down from 4.1 million.
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  So while the revenue drop was pretty small, the profit took a more noticeable hit.
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  Interesting. And I know the materials mentioned that this segment benefited
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  from strong activity in Singapore's built environment, particularly in housing
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  and civil engineering projects.
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  You didn't think that'd be a positive thing? It was definitely a supporting
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  factor, but they also had to deal with increased competition within the sector.
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  And we can't forget those heightened credit risks we talked about.
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  So even with healthy demand, they're operating in a tighter market and need
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  to be very careful about managing those credit risks. I see.
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  They seem to be focusing their efforts on civil engineering projects while maintaining
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  their strong position in residential projects, especially public housing.
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  And they're really playing up those Greenmark certifications from the Singapore
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  Green Building Council.
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  Yeah, that's smart. It helps them stand out in a crowded market.
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  And don't forget, their local manufacturing capability in this segment gives
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  them an advantage in terms of supply chain resilience.
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  Right, which is more important than ever these days. Yeah. So we've covered
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  both of their main segments.
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  Let's zoom out a bit and look at what else is impacting profitability for the
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  entire VicPlus group. What other factors should we be considering?
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  Sure. At the group level, we see a decrease in other income.
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  And that's mainly because of a smaller foreign exchange game compared to last year.
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  Plus, the cost of raw materials and consumables went up. But that's not surprising
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  given the higher production volume we saw, especially in medical devices.
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  Makes sense. Employee benefits expenses also rose, reflecting more employees
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  and probably more overtime as they ramp up production.
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  And it looks like those investments in the Mexico plant are having a ripple
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  effect across the entire group. Exactly.
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  Other operating expenses saw a significant increase, driven by higher production
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  activity overall, including those initial setup and operating costs for the New Mexico facility.
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  Things like selling and marketing, utilities, transportation, maintenance, tooling.
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  It all adds up. And finally, finance costs for the group went up quite a bit, too.
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  So a mix of factors impacting the bottom line, some tied to increased activity
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  in production, others related to those strategic investments they're making,
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  and some external things like currency fluctuations.
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  OK, let's shift gears now and look at the balance sheet as of January 31st, 2025.
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  What were some of the key takeaways there? What's happening with VicPlus's overall financial position?
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  Well, one thing that stands out is the increase in their cash and cash equivalents.
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  That rose to $6.9 million Singapore dollars from $5 million at the end of the previous fiscal year.
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  It's good to see their liquidity improving. It gives them more flexibility.
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  Absolutely. And we also saw an increase in trade receivables,
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  which probably reflects those higher sales in medical devices.
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  More sales, more outstanding payments, right? Makes sense. Now,
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  contract assets actually decreased, and the results announcement suggested this
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  might be a timing issue related to the Lunar New Year in January.
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  There's often a slowdown in ongoing projects around that time,
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  and those projects are typically recognized as revenue over time.
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  So this might just be a temporary dip. OK, so once things pick back up after
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  the holidays, we might see those contract assets increase again.
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  Exactly. Now, shifting to their long-term assets, property, plant and equipment
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  increased, largely driven by that ongoing investment in the Mexico plant.
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  They mentioned a total acquisition cost of $4.3 million Singapore dollars for
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  that facility just in the first half of FY 2025.
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  Wow, that's a substantial investment. It is. We also saw a decrease in right-of-use
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  assets and lease liabilities, but that's just normal depreciation and amortization
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  as those assets get used and lease obligations get paid down over time.
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  Right. Part of the regular accounting cycle.
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  But it is worth noting that their total bank borrowings increased.
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  They're using that to finance both their growing working capital needs and those
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  capital expenditures, particularly the Mexico plan. Right.
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  Interestingly, other payables actually decreased. Could that be due to timing
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  of payments, maybe for things like employee bonuses that were accrued but not yet paid? Possibly.
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  It's hard to say for sure without more detail. True.
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  And lastly, net asset value per share increased slightly to 14.64 Singapore cents, up from 14.59.
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  So the balance sheet shows us a company that's investing in growth,
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  expanding in Mexico, and managing its working capital to keep pace with those rising sales.
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  Now, let's see how all of this plays out in their cash flow statement.
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  All right, looking at cash flow, net cash from operating activities turned positive.
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  Came in at 0.9 million Singapore dollars compared to negative 1.2 million during
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  the same period last year.
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  That's a significant improvement driven by the higher profit before tax and
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  good working capital management.
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  Really good to see them generating positive cash flow from their core operations. Yeah, definitely.
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  How about investing activities? Where do they spend their cash?
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  Net cash used in investing activities decreased to negative 4.2 million from negative 5.7 million.
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  That decrease was mainly because their overall capital expenditure was lower
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  this period, even with that big investment in Mexico.
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  Interesting. And what about their financing activities? Well,
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  net cash from financing activities was 5.2 million Singapore dollars, up from 2.8 million.
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  And the company specifically pointed out that this increase was largely due
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  to the fact that they didn't pay out any dividends in the first half of FY 2025.
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  That makes a big difference to their cash flow. It does.
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  Holding back on dividends gives them more financial wiggle room to fund their
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  expansion and other operational needs. Yeah.
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  Okay, so we've got through the numbers. Let's wrap up by considering the company's
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  outlook and what they see coming down the pike. Sure.
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  Broadly speaking, VicPlace is expecting positive revenue growth in the next
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  reporting period, and they're banking on the continued strength of their medical
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  devices segment to drive that.
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  But they also acknowledge that it's going to remain a tough operating environment,
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  especially with those increasing fixed costs in the medical devices division due to their expansion.
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  Right. It's like we've got two different stories playing out.
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  Medical devices with strong top-line growth but facing those hefty investment
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  costs, and then pipes and pipe fittings navigating a trickier market but still profitable.
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  Exactly. And they were pretty specific that the medical device's segmental results
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  might be a bit constrained in the short term, while that Mexico plant ramps
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  up and starts absorbing those initial operating costs.
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  And as they get better utilization out of their expanded Chengzhu facility.
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  So they're basically saying, hey, we're making these upfront investments and
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  it might take a bit for them to fully pay off. Exactly.
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  But their long-term view is optimistic. They emphasize that these investments
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  are going to give them more manufacturing flexibility and better access to those
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  key global medical device markets like the U.S., Europe, and Japan,
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  in addition to their ongoing growth in China.
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  So they're really positioning themselves for a strong future in the medical
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  devices space. Absolutely.
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  And over in Pipes and Pipe Fittings, they expect continued strong demand from
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  Singapore's built environment sector.
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  But their main focus is going to be on carefully managing the competitive landscape,
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  keeping costs under control, and mitigating those credit risks we talked about.
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  Makes sense. Play it smart and stay disciplined. Right.
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  And for the group as a whole, they're cautiously optimistic,
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  but definitely keeping a close eye on the global economic situation.
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  Things like inflation, interest rates and other potential conge pressures.
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  They also reiterated their decision not to declare or recommend a dividend for
• 13:21
  this half year, saying they want to keep their options open for managing their
• 13:25
  capital in the coming months.
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  Okay, so a lot to consider as we continue to follow Vic+. I think the key takeaway
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  here is that they showed solid overall revenue growth and a significant improvement
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  in pre-tax profitability in this first half of FY 2025.
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  And that was largely driven by their medical devices segment.
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  After-tax profit growth was more muted because of those higher tax expenses
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  tied to the expansion, but the underlying business seems to be doing well.
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  Pipes and pipe fittings had a tougher go of it, but still remained profitable
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  while taking a cautious approach.
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  And those strategic investments they're making, especially a new plant in Mexico,
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  are going to be important drivers of their performance going forward.
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  But we'll need to keep an eye on how those investments play out and when they
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  start to really contribute to the bottom line. Absolutely.
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  This deep dive should give our listeners a good understanding of where VicPlus
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  stands financially at this point in their fiscal year. Definitely.
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  But here's a question to think about as we move forward. Given that big investment
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  they're making in Mexico and their expectation that it'll start generating revenue
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  in the second half of the year, what key performance indicators should we be
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  looking at beyond just the revenue numbers?
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  What metrics will really tell us if that expansion is successful and how it's
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  impacting their overall financial health and their position in the global medical
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  device contract manufacturing market?
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  That's something to consider as you follow their progress. And for those who
• 14:49
  want to dig even deeper, I'd encourage you to explore the overall MedTech contract
• 14:53
  manufacturing landscape and the specifics of the Singaporean construction industry.
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  It'll give you a richer context for understanding Vic Plus's journey.
• 15:02
  Thanks for diving deep with us today. Thanks for having me.