UOB Kay Hian 2015-08-20: Ellipsiz Limited - Adjusted FY15 Net Profit Grew 15% YOY.

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ELLIPSIZ LTD E13.SI

Adjusted FY15 Net Profit Grew 15% YOY. 

VALUATION 

• Maintain BUY but with a lower SOTP target price of S$0.125. The decrease in target price is mainly due to the lower average PE valuation of Ellipsiz’s peers. 

FINANCIAL RESULTS 

• Adjusted FY15 net profit grew 15% yoy to S$7.4m, accounting for 97% of our full-year forecast. FY15 revenue dropped 44% yoy due mainly to the divestment of two activities within the distribution and services (DSS) segment at end-FY14. The decrease in contribution from the DSS segment was however offset by improvement in revenue contribution from the higher-margin Probe Card Solution (PCS) segment that grew 6% yoy. 

OUR VIEW 

• Strong cash flow generation, as Ellipsiz generated S$10.3m (S$0.018/share) of free cash flow (FCF) in FY15. Ellipsiz had generated positive FCF in the last five years with the exception of FY14 when it acquired certain probe card businesses, technologies, and assets of Tokyo Cathode Laboratory Co., Ltd. 
• 56% of market cap backed by net cash. With the strong cash flow generation, Ellipsiz’s net cash position has risen to S$32m (S$0.057/share). 
• 5.9% dividend yield. Ellipsiz has declared a year-end dividend of S$0.004/share. Together with its interim dividend of S$0.002/share, the full-year dividend of S$0.006/share (+11% yoy in line with the increase in earnings) translates to an attractive dividend yield of 6%. 
• Lower our FY16 and FY17 profit forecast by 13-14% on the bleaker outlook in the semiconductor industry. Ellipsiz remains cautious over the group’s outlook due to: 
  1. the high inventory of semi-conductor devices built up in the industry during 1H15, 
  2. macroeconomic uncertainties, 
  3. slowing demand in emerging markets and China, and 
  4. cautious capex budget by its customers. 
• Maintain BUY. Excluding its hefty net cash position, Ellipsiz is trading at an undemanding ex-cash FY16F PE of 3.5x. We believe current prices will be supported by Ellipsiz’s strong net cash balance and attractive dividend yield of 5.9%. As the semiconductor industry continues to consolidate, Ellipsiz remains as a potential attractive M&A target by larger probe card manufacturers. Its strong net cash position may also provide the necessary resources for the group to grow inorganically through acquisitions.

Loke Chunying | http://research.uobkayhian.com/ UOB KH 2015-08-20

BUY Maintain BUY 0.125 Down 0.171