SUNNINGDALE TECH LTD
BHQ.SI
Sunningdale Tech Ltd - Blast from the past
- One-stop shop for precision plastic injection moulding solutions.
- Global manufacturing footprint; ranked near the top among North American peers.
- May attract private equity interest given its size and shareholding structure.
- Room for re-rating with ROE improvement on margin expansion.
- Initiate with an ADD rating and target price of S$1.49 based on 0.8x CY16 P/BV.
One-stop shop
- Sunningdale Tech has more than 30 years of experience in the precision plastic injection moulding and mould making industry. It has a diverse customer base ranging from the automotive industry to the consumer/IT and healthcare industries.
- 80% of its revenue is derived from 30 customers, while the top 10 customers account for 50% of revenue.
What has changed?
- In FY14, Sunningdale Tech completed the acquisition of First Engineering. This propelled Sunningdale Tech close to the ranks of the top 10 plastic injection moulders in North America. The acquisition also enlarged the Group’s global footprint to 18 manufacturing locations in 9 countries.
Will private equity bite?
- In 2015, a vehicle of Baring Private Equity Asia launched an offer for the SGX-listed Interplex Holdings Ltd, a metal stamping company. A key feature of Interplex was its global manufacturing footprint.
- Another HK private equity fund also launched a bid for Chosen Holdings, a plastic injection moulding peer of Sunningdale Tech.
- Sunningdale Tech’s current revenue size, its global footprint and fragmented shareholding could pique private equity’s unsolicited interest.
Can ROEs improve?
- Although our base case forecasts assume an unchanged 13.5% gross profit margin over FY16-18, the company could surprise on the upside, as economies of scale and better manufacturing presence lead to margin expansion. This would improve ROEs and could just be the catalysts for a re-rating.
- Based on their latest full year results, Fu Yu Corporation had a 16% gross margin while Fischer Tech achieved 18% gross margin.
Growth drivers
- With the acquisition of First Engineering, the automotive segment now accounts for 41% of sales, excluding mould fabrication revenue.
- Going forward, we believe the automotive segment will remain an important growth driver as the use of plastics in automotive increases.
- The company is also anticipating a production ramp up in 2H16 for some automotive projects awarded during the past two years.
Initiate with Add
- Based on a justified P/BV of 0.8x (ROE:6.6%, COE:7.6%, zero growth) on a CY16 BVPS forecast, we derive a target price of S$1.49.
- Our assumed 20% dividend payout ratio could be conservative, but this is justified by higher capex needs in FY16-17. The payout ratio could increase past its current expansion phase.
- We initiate with an Add.
William Tng CFA
CIMB Securities
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http://research.itradecimb.com/
2016-03-29
CIMB Securities
SGX Stock
Analyst Report
1.49
Same
1.49
