Sunningdale Tech (SUNN SP) - UOB Kay Hian 2017-11-10: 3Q17 Results In Line; Hit By Unfavourable Forex

Sunningdale Tech (SUNN SP) - UOB Kay Hian 2017-11-10: 3Q17 Results In Line; Hit By Unfavourable Forex SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech (SUNN SP) - 3Q17 Results In Line; Hit By Unfavourable Forex

  • Sunningdale’s 3Q17 results were in line with expectations. 
  • Core net profit to shareholders grew 37.8%, led by growth from all four of Sunningdale’s business segments. The group saw an unfavourable forex impact for 3Q17 as headline net profit fell 24.2% yoy. 
  • Sunningdale continues to win new projects from new and existing customers as they expand capacity in Chuzhou, China, and build a new plant in Penang, Malaysia. 
  • Maintain BUY with a PE-based target price of S$2.51.



WHAT’S NEW


3Q17 results in line with expectations. 

  • Sunningdale’s (SUNN) core net profit came in 37.8% higher yoy, driven mainly by sales growth from all four of Sunningdale’s business segments (automobile, consumer, healthcare and mould fabrication). 
  • In the face of headwinds such as labour costs and pricing pressure, gross margins rose from 14.2% in 3Q16 to 14.3% in 3Q17 as the group’s sales mix remained relatively stable. The group’s high-margin automobile segment exposure fell slightly from 35.8% of sales in 3Q16 to 33.6% of sales in 3Q17 while the consumer/IT segment fell from 42.2% of 3Q16 sales to 40.9% of 3Q17 sales. Cyclical mould fabrication revenue rose substantially by 35% yoy in 3Q17. 
  • Sunningdale reported a forex loss of S$3.1m for 3Q17 due to a weakening US$ which resulted in 3Q17 headline net profit falling 24.2% yoy to S$7.7m.

Strong balance sheet and cash flow. 

  • Sunningdale generated strong positive operating cash flow of S$33.7m for 9M17 while the balance sheet remained robust with a net cash position of S$7.8m as of 3Q17.
  •  The company is well-positioned to capitalise on future organic or inorganic opportunities that may arise.


STOCK IMPACT


Focusing on high-margin products while expanding capacity. 

  • Sunningdale will continue to focus on driving efficiency and productivity as the group optimises resources across their 19 manufacturing locations. SUNN has been able to win new projects from both new and existing customers due to its status as a one-stop precision plastic engineering company. 
  • The group is currently expanding capacity in their newest Chuzhou plant in China which was completed in 4Q16. A new plant is also currently being built in Penang, Malaysia and should be completed in 1Q18. We take this as an indication of SUNN’s optimistically positive outlook going into 2018.


EARNINGS REVISION/RISK

  • No change to our earnings estimates.


VALUATION/RECOMMENDATION

  • Maintain BUY recommendation on the company with a PE-based target price of S$2.51 pegged to peers’ average 2018F PE ratio of 11.4x. 
  • Our target implies a historical 2016 P/B ratio of 1.34x. We re-iterate 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 PB.


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/ 2017-11-10
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.510 Same 2.510



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