MEMTECH INTERNATIONAL LTD
M26.SI
Memtech International - Better sales growth for consumer electronics
- Reiterate Add after our visit to Memtech’s Dongguan plant.
- Re-rating catalysts: order recovery in 2H15 and Beats becoming its latest customer. More exciting projects in the pipeline.
- Stronger sales growth for consumer electronics to offset slowdown in automotive.
- Attractive dividend yields of 6.2-9.2% in FY15-17 and support from share buyback.
Site visit to Dongguan factory in China
- On 21-23 Sep 2015, we participated in a company-organised site visit to Memtech’s Dongguan factory, one of its three manufacturing facilities in China. The Dongguan factory’s estimated sales breakdown into consumer electronics, telecommunication and automotive is 50%/30%/20% and current production utilisation rate is about 80%.
First approved supplier for Beats’ new collection
- Beats by Dre, which was acquired by Apple in 2014, is the global market leader in premium headphones. Memtech recently obtained design approval from Beats for its next-generation product and is currently the only supplier of silicone rubber parts for this new model.
- Production is expected to commence in early FY16 and is expected to contribute meaningfully to FY16 topline if product progress is smooth.
Better 2H expected for consumer electronics sales
- The 2.6% yoy decline in Memtech’s 2Q15 revenue was largely due to delays in orders from the consumer electronics segment, which have since resumed. Management expects greater sales volume in 2H, especially from stronger orders placed by Amazon in anticipation of the year-end gift season.
Slower automotive outlook in China
- There was an unexpected order delay in 2Q15 due to excess inventory at automotive dealers in China. However, the company remains on track to commence production of automotive functional plastic parts in 2016. This segment is more competitive but typically yields higher profit margins than decorative plastic parts. Memtech has 50/50 automotive sales exposure to China and other countries.
Support from share buyback
- Management has the mandate and financial capability to repurchase up to 10% of total issued ordinary Memtech shares (excluding treasury shares). It concluded share buyback of 1.5m shares in total on 21 Aug and 27 Aug, reducing its share capital and increasing FY15-17F EPS slightly by 0.1-0.2%. The buyback demonstrates management’s confidence in the company and provides support to the share price.
Accumulate the stock for attractive dividend yield
- We like the company for its net cash position and attractive indicative FY15-17 dividend yields of 6.2-9.2%. Management is likely to maintain FY14 dividend payout ratio of 50%. We anticipate the rollout of new products but keep our assumptions at this juncture.
- Our target price of S$0.17 is unchanged, still based on 10x CY16 P/E (in line with peers’ average). We recommend that investors Add Memtech.
William TNG CFA
CIMB Securities
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NGOH Yi Sin
CIMB Securities
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http://research.itradecimb.com/
2015-09-28
CIMB Securities
Analyst Report
0.17
Same
0.17
