MEMTECH INTERNATIONAL LTD
M26.SI
Gunning for a better 2H15
- Memtech’s 2Q15 results were below expectations.
- 1H15 revenue and core net profit came in only at 42% and 28% of our FY15 forecast respectively.
- Unexpected delays in customer orders from its automotive and consumer electronics segments, coupled with higher admin expenses, led to a disappointing first half.
- We revise our FY15-17 EPS numbers downwards by 12-26% to account for the pushback and slowdown in the Chinese economy, but remain optimistic of a seasonally-stronger 2H15.
- Consequently, our target price falls to S$0.17 (still based on 10x CY16 P/E).
- We maintain our Add rating. Stronger-than-expected quarterly earnings momentum is the key re-rating catalyst while continual weakness in China’s economy is a key risk.
2Q15 sales fell 2.6% yoy
- Memtech reported slower 2Q15 sales of US$33.4m, compared with US$34.3m in 2Q14, but 1H15 revenue was up 5.4% yoy.
- Despite strong car sales in the EU and US markets, Memtech faced some headwinds in the auto segment as one of its clients had operational issues in Brazil, and there was an oversupply of vehicles in China.
- We expect sales to pick up considerably in 2H15 when it resumes its order backlog and the supply glut starts to ease.
Admin expenses rose 23.3% yoy
- The increase in general and admin expenses was attributed to higher employee costs and higher debt provision in account receivables.
- Memtech is gradually moving towards manufacturing of functional plastics which are of higher value (production expected to commence in 2016/17). The automation of robotic arms for precision assembly of hybrid parts in its Dongguan factory could improve productivity and mitigate the rising labour costs in China.
- Management guided that the Rmb depreciation would benefit the company slightly as 50/50 of its sales are in US$/Rmb vs. 25/75 of its COGS.
Still one of the favourites
- We continue to favour Memtech among Singapore-listed precision components solution providers for its diversified customer base, healthy balance sheet, and its historical 50% dividend payout ratio which gives us an attractive forecasted FY15-17 dividend yield of 6.7-10%.
- We maintain ADD.
William TNG CFA | NGOH Yi Sin | http://research.itradecimb.com/ CIMB Securities 2015-08-13
0.17
Down
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