INTERPLEX HOLDINGS LTD
M1P.SI
Interplex Holdings Ltd - Weakness in China, but still growing
- 1Q16 revenues grew 4% to US$234.8m despite weaker domestic demand in China and end-market demand for certain products
- Net profit to shareholders nearly tripled to US$11.6m in 1Q16
- Both revenue and earnings for 1Q16 are in line with our expectations, at 24% and 26% of our FY16 forecasts respectively
- Maintain BUY on better earnings quality ahead, and lift TP to S$0.91 after rolling forward our earnings base to 7x blended FY16/17F PE.
Highlights
Top-line growth was modest at 4% y-o-y.
- The automotive segment grew 31% y-o-y to US$67.4m on new launches and growth in existing sales to North America and Europe, while the telecommunications segment grew 62% to US$18.9m.
- However, the strong growth in these segments was partly offset by declines in the consumer electronics and mass storage segments following weak end-market demand.
Record tooling revenues indicative of potential for contract wins.
- Interplex’s tooling sales grew by 44% y-o-y as demand for tooling services grew across its operating segments.
Surge in net profits by 185% to US$11.97m.
- Growth in net profit was mostly due to the one-off acquisition cost of c.US$4.8m incurred in 1Q15 and as Interplex benefitted from foreign exchange gains this quarter.
Outlook
Revenue growth should remain modest.
- We project single-digit growth for various core segments (automotives and telecommunications, etc), but uncertainties surrounding the end-demand for others (such as mass storage) will likely weigh on overall revenue growth.
Cross-selling and cost cuts should lift margins and boost earnings.
- With the potential for further automation earnings and insourcing of some of Interplex Industries’ processes, we expect net margins to improve from 4.5% in FY15 to 6.1% in FY18, which could grow earnings by 52% to US$61.4m in FY18.
Valuation:
- Maintain BUY, raising 12-month TP to S$0.91 as we roll forward our earnings base to 7x FY16/17F PE. Similar to the historical average, this implies a 36% discount to larger peers.
- Against 3-year core EPS CAGR of 14.9%, we believe our valuation multiple of 7x earnings is reasonable.
- Share price should rerate as earnings are delivered.
Key Risks:
Global economic slowdown.
- With exposure across some of the globe’s main manufacturing regions, a global economic slowdown could pose significant challenges to Interplex Holdings as many of its industry segments, such as Consumer Electronics and Automotives, are sensitive to fluctuations in the global economy. If so, it could have a significant impact on Interplex Holdings’ revenues and profitability.
Paul YONG CFA
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2015-11-16
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