UOB Kay Hian 2015-08-31: Interplex Holdings - Finishing FY15 With A Bang.

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INTERPLEX HOLDINGS LTD. M1P.SI

Finishing FY15 With A Bang 

VALUATION 

• Maintain BUY but with a lower target price of S$0.825, as we change our valuation method from PEG to PE to factor in the moderation in growth following the consolidation of the US subsidiary. 
• Our target price is based on FY16F EPS of S$0.101 and 8.2x PE, which is at a 20% discount to Interplex’s 5-year average PE to account for the greater uncertainty in the macro economic outlook and high gearing. 

FINANCIAL RESULTS 

• Results in line with estimates. 

• Interplex Holdings (formerly Amtek Engineering) reported 4QFY15 net profit of US$18m, on the back of a surge in revenue from the consolidation of Interplex Industries (acquired in Aug 14), and gains from disposal of properties. Excluding one-off items, adjusted FY15 profit before tax will have formed 103% of our full-year forecast. As at 30 Jun 15, Interplex had a net gearing of 102%. 

• Increased dividend. 

• With the improved profitability, Interplex increased its final dividend payout by 50% to S$0.015/share. Total FY15 dividend declared was S$0.028/share, translating to a dividend yield of 4.3%. 

INVESTMENT HIGHLIGHTS 

• Integration in progress. 

• Interplex has started to recognise some revenue synergies through cross-selling opportunities (between Amtek and Interplex) which have been partially reflected in better tooling sales. Various cost-saving synergies have also been recognised as Interplex looks to consolidate its manufacturing plants and implement automation programs in FY16 to improve cost efficiencies. 

• Greater macro uncertainty. 

• Concerns over China economic slowdown continue to deepen after the preliminary Caixin/Markit China Manufacturing PMI index fell below expectations in August to 47.1, the worst reading since Mar 09. While the US manufacturing sector continues to recover, there was a slight loss in momentum as Markit Flash US Manufacturing PMI index dipped to 52.9 in August, its lowest level since Oct 13. 

• Raised our FY16 and FY17 profit forecasts by 4-9%. 

• We adjust our revenue forecast lower to account for the greater uncertainty in the macro economic outlook but increase our previously conservative gross margins assumptions, as we are encouraged by the sustained gross margins enjoyed by Interplex during the year. The devaluation of the renminbi will also stand to benefit Interplex with its extensive manufacturing operations in China, as majority of the group’s China production is ultimately destined for export. 

• Our View. 

• As customers look to consolidate their supply chain for cost and time efficiency, Interplex stands to benefit with its expanded service offerings and geographical footprint. If the integration of the US subsidiary is properly executed, we believe Interplex will be a good earnings growth play with profitability driven by: 
  1.  Revenue synergies from cross-selling opportunities, 
  2.  Cost synergies from economies of scales, and 
  3.  interest cost savings as Interplex gradually pares down its heightened gearing with its robust cash flow generation.

Loke Chunying | http://research.uobkayhian.com/ UOB KH 2015-08-31

BUY Maintain BUY 0.825 Down 0.925