Small Caps - CIMB Research 2017-05-18: Manufacturing Stocks Shine In 1Q17

Smallcaps - CIMB Research 2017-05-18: Manufacturing Stocks Shine In 1Q17 Singapore Stocks Picks Small Caps Top Picks AEM HOLDINGS LTD AWX.SI RIVERSTONE HOLDINGS LIMITED AP4.SI SUNNINGDALE TECH LTD BHQ.SI MEMTECH INTERNATIONAL LTD BOL.SI UMS HOLDINGS LIMITED 558.SI

Small-Caps - Manufacturing Stocks Shine In 1Q17

  • 1Q17 reporting season saw seven stocks beat our estimates (4Q16: 3) while 6 stocks were in line. Three stocks reported earnings below our estimates (4Q16: 4).
  • We remove Cityneon and Talkmed from our top small-cap picks.
  • New additions to the list this quarter are AEM Holdings and Riverstone Holdings.
  • AEM will enjoy a good FY17 with both qoq and yoy net profit growth. The company has guided for a pre-tax profit of at least S$17.5m for 9M17.
  • We believe Riverstone could enjoy EPS CAGR of 17% in FY17F-19F, driven by capacity expansion.



1Q17 earnings performance 

  • The 1Q17 results season was a good quarter for small-cap stocks under our coverage. Manufacturing stocks, in particular, reported strong 1Q17 results. 
  • In 1Q17, net profit of 7 companies came in above expectations (4Q16: 3), 6 companies performed in line with expectations (4Q16: 10) and 3 companies reported below-expectation earnings (4Q16: 4). 
  • The 1Q17 earnings outperformance was driven mainly by stronger revenue growth.

Changes to small-cap top picks 

  • We are removing Cityneon and Talkmed from our small-cap top picks. 
    • Cityneon’s near-term share price upside will be capped by the current offer price of S$0.90 per share proposed to its major shareholders. 
    • Talkmed’s share price factors in the current positives and it will need a meaningful acquisition to drive earnings further. 
  • Replacing these two stocks are AEM Holdings Ltd and Riverstone Holdings Ltd.
  • Memtech, Sunningdale Tech and UMS Holdings remain in the portfolio.



AEM Holdings 

  • AEM’s share price has gained 140.4% since our initiation report on 8 Mar 17. It is currently the sole source supplier of test handlers to its single customer. 
  • The company announced a strong 1Q17 and the share price re-rated as it guided for a pre-tax profit of at least S$17.5m for 9M17 (9M16: S$4.9m). If this materialises, it would translate into a very robust 257.1% yoy growth in pre-tax profit.


Riverstone Holdings 

  • Riverstone’s 1Q17 core net profit was ahead of our expectations and we are projecting a stronger 2H as more capacity comes on-stream. 
  • Management has revised upwards its capacity expansion plan, with total capacity slated to reach 10bn pieces p.a. by endFY19, representing a 60% increase over end-FY16. 
  • Backed by EPS CAGR of 17% in FY17F-19F, we upgraded Riverstone from Hold to Add post its 1Q17 results.



Highlighted companies 


AEM Holdings Ltd 

  • ADD, TP S$3.39, S$2.44 close 
  • AEM is currently the sole source supplier for its key customer. 
  • We believe EPS CAGR over FY17F-19F can hit 74.8%. For 9M17, AEM forecasts its pre-tax profit to amount to at least S$17.5m.

Memtech International 

  • ADD, TP S$1.09, S$0.79 close 
  • Memtech is a net-cash company that is trading at 0.69x CY17 P/BV. Dividend yields are projected to be 4.5-5.5% over CY17F-18F.
  • We believe Memtech will enjoy margin expansion given volume growth.

Sunningdale Tech Ltd 

  • ADD, TP S$2.19, S$1.83 close 
  • Sunningdale Tech has finally seen the results of its cost reduction initiatives. The 1Q17 gross margin rose to 15.0%. 
  • We believe margins will continue to improve, leading to a hike in our profit forecasts.








William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-05-18
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 3.390 Same 3.390
ADD Maintain ADD 1.110 Same 1.110
ADD Maintain ADD 2.190 Same 2.190
ADD Maintain ADD 1.090 Same 1.090
ADD Maintain ADD 1.150 Same 1.150



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