Sunningdale Tech Ltd - DBS Research 2017-03-08: Ripe for harvest

Sunningdale Tech Ltd - DBS Vickers 2017-03-08: Ripe for harvest SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech Ltd - Ripe for harvest

  • Amid challenging operating climate, Sunningdale is one of few precision engineering plays that actively invests in future growth.
  • Steady growth outlook underpinned by strong business fundamentals.
  • At 0.7x P/BV and 9x FY17F PE, the stock’s attractive valuations could lead to a potential takeover – especially from PE funds.



The Business  


Leading manufacturer of precision plastic components. 

  • Ranked among the largest high-precision plastic solutions providers globally, Sunningdale’s competitive advantages lie in its advanced manufacturing capabilities, global manufacturing footprint, and scale. 
  • The group also stands out for its diversified MNC customer base – majority of its customers each contribute between 3-5% to group sales on average, which greatly reduces customer concentration risk seen among small-mid cap peers.

Strong fundamentals underpin steady growth outlook. 

  • Riding on its strong business fundamentals, Sunningdale has delivered consistent margin improvement and growth over the last few years. 
  • Bearing in mind that several one-offs (such as foreign exchange and disposal gains) led to record earnings in FY16, we see core earnings growing to S$30.9m in FY17F and S$35.7m in FY18F as the group 
    1. ramps up production on new automotive and healthcare projects, 
    2. strengthens business development efforts, to enjoy greater economies of scale.


The Stock 


Fair value of S$1.64 based on 10x FY17F PE. 

  • With reference to peers, we opine that leading local player, Sunningdale, should at least trade on par with peers’ average of 10x given its robust growth outlook, and thus value the company at S$1.64. 
  • At current price, Sunningdale also offers a decent yield of 4.8%.

Potential takeover candidate. 

  • Backed by strong cash flow generation, healthy balance sheet and attractive valuations of 0.7x P/BV and 9x FY17F PE (vs peers’ average of 1.1x and 10x respectively), Sunningdale could be an attractive takeover target for PE funds or larger players seeking to acquire advanced manufacturing capabilities, global manufacturing facilities or to gain immediate access to a diversified MNC customer base.



NOT RATED
Return *: 2 

Risk: Moderate
Potential Target 12-mth* : 12-Month S$ 1.64 (12% upside)




Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-03-08
DBS Vickers SGX Stock Analyst Report NOT RATED Maintain NOT RATED 1.64 Same 1.64



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