Sunningdale Tech (SUNN SP) - UOB Kay Hian 2017-08-03: 2Q17 Results Above Expectations; A Pleasant Dividend Surprise

Sunningdale Tech (SUNN SP) - UOB Kay Hian 2017-08-03: 2Q17 Results Above Expectations; A Pleasant Dividend Surprise SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech (SUNN SP) - 2Q17 Results Above Expectations; A Pleasant Dividend Surprise

  • Sunningdale (SUNN) reported strong 2Q17 results with core net profit rising over 57% yoy, driven by stronger gross margins and lower costs. 
  • The group gave upbeat guidance on a seasonally stronger 2H17, instilling confidence in the group’s prospects for the rest of 2017. 
  • Shareholders have been rewarded with a surprise maiden interim dividend. 
  • Maintain BUY with a higher PE-based target price of S$2.51.



RESULTS


2Q17 results above expectations. 

  • Sunningdale Tech’s (SUNN) core net profit rose 57% yoy, driven by higher gross margin and better operational efficiencies which led to lower costs. 
  • Gross margin rose from 13.8% in 2Q16 to 15.6% in 2Q17, attributed to a better sales mix. The group’s high-margin automotive sales from 36.4% of total sales in 2Q16 to 36.9% in 2Q17 while consumer/IT sales rose from 38.3% of 2Q16 total sales to 40% in 2Q17. 
  • Administrative expenses dipped 2.8% yoy to S$$10m while other expenses were reduced by 34.8% to S$3.7m in 2Q17. 
  • SUNN reported forex losses of S$2.6m in 2Q17 due to a weakening US dollar.

Positive guidance for 2H17. 

  • The 2H (June-December) typically marks a seasonally stronger half for SUNN’s business as the group has a large manufacturing presence in China and Chinese factories take a long Lunar New Year break during the first quarter of the year. 
  • SUNN indicated that heading into 2H17, business development initiatives are starting to gain more traction as the group receives enquiries from both new and existing customers across all business segments. 
  • Furthermore, by issuing its maiden interim dividend, we take this as management’s confidence in the prospects of the company.

A surprise interim dividend. 

  • SUNN declared a maiden interim dividend of 2.5 S cents/share.


STOCK IMPACT


Only three plastic injection moulders (PIM) left on SGX. 

  • Platinum Equity has offered to take Fisher Tech private in a deal that values the firm at S$152m, or S$3.02/share. This values Fisher Tech at a trailing PE of 13x, P/B of 1.5x and EV/EBITDA of 5.7x. 
  • With Fisher Tech being privatised, there remain only three other PIMs in Singapore - SUNN, Memtech International and Fuyu Corp.


EARNINGS REVISION/RISK

  • We raise our 2017-19 core net profit estimates by 14.0-16.8% as we raise our gross profit margin estimates from 14.4% to 15.2%, and lower our administrative and other operating expense assumptions.


VALUATION/RECOMMENDATION

  • Maintain BUY with a higher PE-based target price of S$2.51, pegged to peers’ average 2018F PE of 11.4x. Our target price implies 2016 P/B of 1.34x. We reiterate our view that should a privatisation happen, we would likely see further upside to our target price as the most recent PIM acquisition of Fisher Tech was done at 1.5x trailing P/B. 
  • Sunningdale Tech SUNN has been raising dividends throughout the years. We make no change to our dividend forecast and expect 6.5 S cent/share for 2017, translating into a 3.2% yield.


SHARE PRICE CATALYST

  • Potential privatisation.
  • Expansion into new precision engineering segments.




Nicholas Leow UOB Kay Hian | Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-03
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.51 Up 2.040



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