Memtech International (MTEC SP) - UOB Kay Hian 2017-05-02: 1QFY17 Results, Earnings Momentum Continues

MEMTECH INTERNATIONAL (MTEC SP) - UOB Kay Hian 2017-05-02: 1QFY17 Results; Earnings Momentum Continues MEMTECH INTERNATIONAL LTD BOL.SI

MEMTECH INTERNATIONAL (MTEC SP) - 1QFY17 Results; Earnings Momentum Continues

  • Memtech International reported a strong set of 1Q17 results with profit to owners rising 180.7% yoy. As per our investment thesis, the earnings momentum has continued into 2017. 
  • We are positive on Memtech’s automotive and consumer electronics segment prospects for the remainder of the year.



VALUATION

  • Maintain BUY with a PE-based target price of S$1.05. At current valuations, Memtech International (Memtech) offers an attractive dividend yield of about 4% with a formidable net cash position of US$28m (about 33% of market capitalization). 
  • Memtech is trading at about 0.75x FY17 P/B which is a discount to what peers are trading at (0.9- 1.0x FY17 P/B).


FINANCIAL HIGHLIGHTS

  • Net profit after tax came in at US$1.6m for 1Q17, reflecting an increase of 180% compared with US$0.6m in 1Q16 due to sustained growth in the automobile and consumer electronics segments. We expect the bigger ramp-up to occur in 2H17 as Memtech gears up for the seasonally strong holiday season.
  • Margins on the rise. Gross margin trended upward from 15.9% in 1Q16 to 18.1% in 1Q17 due to higher operating leverage and a better sales mix.


OUR VIEW

  • Major customer Magna expanding in China. The automobile segment accounted for about 50% of 1Q17 sales. 
  • One of Memtech’s major customers is planning to open nine new production plants in China, according to Ward’s Auto. This would most likely be for the recently-secured deal to build luxury sedans for BMW AG, and add on to current agreements to manufacture vehicles for Jaguar Land Rover and Daimler AG.


STOCK IMPACT

  • No change to our earnings forecasts.


RECOMMENDATION

  • We maintain our BUY rating on the company with a PE-based target price of S$1.05 which is pegged to peers’ FY17F average PE of 11.4x.




Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-02
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.050 Same 1.050



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