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
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http://research.uobkayhian.com/
2017-05-02
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