Sunningdale Tech Ltd. (SUNN SP) - UOB Kay Hian 2017-03-06: Best Value Under The Sun

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SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech Ltd. (SUNN SP) - Best Value Under The Sun

• The recent Spindex offer signals increasing M&A attractiveness of automotive precision engineering firms like Sunningdale. 
• Enjoying high entry barriers and customer stickiness, the firm is one of the world’s top precision plastic companies. With market-leading capabilities, Sunningdale is well positioned to meet growing industry trends that require greater complexities. 
• It boasts healthy cash flow, a solid balance sheet, consistently increasing dividend and compelling valuations. 
• Initiate coverage with a BUY and PE-based target price of S$1.83.

INVESTMENT HIGHLIGHTS

• Initiate coverage with a BUY and PE-based target price of S$1.83. 
• Despite our conservative earnings forecasts, Sunningdale Tech (Sunningdale) is trading at a compelling 8.1x FY17 PE with an attractive dividend yield of 4.8% for FY17.

A potential M&A target. 

• With the recent M&As for precision engineering firms with substantial automotive exposure (Spindex and Innovalues), Sunningdale is the only large precision plastic player left on the SGX that fits the bill. 
• Generating substantial free cash flow with a solid balance sheet, we believe Sunningdale fills the M&A profile well at compelling valuations.

One of the top global players with a diversified customer base. 

• Founded 30 years ago, Sunningdale operates in 10 countries, making it a truly global force in the plastics industry. It is one of the top global players with production facilities spread across the globe, allowing for better proximity to customers. 
• The company boasts of diversified customer base and revenue streams, which reduces its reliance on any one single customer.

High entry barriers and customer stickiness. 

• The precision engineering segment has high entry barriers due to the technical know-how involved. In addition, the segment requires intensive capital investment followed by large reinvestment needed to keep up with new developments in a constantly evolving industry. 
• Long lead time before entrants are qualified and multi-year contract awards make for high customer stickiness. Combined with Sunningdale’s 30-year track record and scale, this gives it a natural economic moat.

Integrated market-leading moulding capabilities position it well to meet growing industry trends that require increasing complexity. 

• While the industry outlook is positive, we believe automotive and medical usage of precision plastics will increase in complexity. Sunningdale employs more than 200 designers with 10,000sqm of mould manufacturing area in Singapore and China and supports no less than 2,000 moulds fabricated each year. 
• The fully integrated CAD/CAM design and engineering process is capable of producing complex designs, positioning Sunningdale well for the growing automotive and medical healthcare segments.

Strong cash flow and S$15.5m net cash position supports growing dividends.

• Supported by strong free cash and a solid balance sheet (net cash of S$15.5m at 31 Dec 16, or 6% of market cap), Sunningdale has been raising dividends paid to shareholders throughout the years. 
• We expect a 6.5 cent/share dividend for FY17, translating into an attractive yield of 4.8%.

Nicholas Leow UOB Kay Hian | Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2017-03-06

UOB Kay Hian SGX Stock Analyst Report BUY Initiate BUY 1.83 Same 1.83