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QT Vascular (5l0.SI)
(2Feb2017) close: S$ 0.061
12-M Target price: S$ 0.050
1.) Sector: QT Vascular is engaged in the the design, assembly and distribution of balloon catheters used in angioplasty. (Healthcare)
2.) Core business structure: Sales of its Chocolate® PTA Balloon Catheter (“Chocolate PTA”) and Glider PTCA.
3.) Business Segments: The Group has one business activity and there are no segment managers who are held accountable for operations, or plans for levels or components below the consolidated unit level. Accordingly, the Group operates as a single reportable segment.
4.) Countries that the business operates: The United States remained the Group’s largest market, accounting for 87.1% of total revenue. Europe accounted for 3.4% of total revenue. Sales to Asia Pacific increased slightly to US$1.2 million, accounting for 9.5% of total revenue.
5.) Challenges: The group’s balance sheet is worrying. Due to the recognition of the legal liability provision of US$23.4 million, the Group had negative working capital of US$24.0 million as at 31 December 2015. On top of that, the Group had utilised its cash for general working capital purposes, the professional fees relating to the litigation cases, and research and development of new products. As a result, the Group had net liabilities of US$13.7 million as at 31 December 2015.
Moreover, the company has been loss-making for at least the past 6 years due to a combination of high expenses (R&D, marketing, litigation) and sales volumes below break-even levels; it is now considering a sale of key assets.
6.) Strengths: Management continues to believe the Group is well positioned to benefit from the continued strong adoption of drug-coated balloons. With two drug coated balloons approved in the United States, and supported by strong clinical data, the group believes the use of drug-coated balloons will continue to increase in the coming years.
7.) Significant events:
Catalist-listed QT Vascular noted in a Singapore Exchange filing on Wednesday that its independent auditor, KPMG, had included an “emphasis of matter” in its independent auditor’s report on the group’s financial statements for the year ended Dec 31, 2015.
KPMG had said, in a section titled “Emphasis of matter”, that “without qualifying our opinion, we draw attention to Note 2 to the financial statements which indicates that the financial statements have been prepared on a going concern basis notwithstanding the net loss of US$53,050,000 for the current year, the deficiency in net assets of US$13,686,000 and the net current liabilities of US$23,972,000 as of 31 December 2015”.
9.) Recommendation: Sell. The company has yet to ramp-up its sales to breakeven levels, with marketing, R&D and litigation expenses far outstripping revenue. Moreover, its traditional products such as Chocolate® PTA Balloon Catheter (“Chocolate PTA”) and Glider PTCA are increasingly being replaced by drug-coated balloons from its competitors.
DISCLAIMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.