Sunningdale Tech Ltd - CIMB Research 2016-12-05: One-stop shop with global footprint

Sunningdale Tech Ltd - CIMB Research 2016-12-05: One-stop shop with global footprint SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech Ltd - One-stop shop with global footprint

  • One-stop shop for precision plastic injection moulding solutions.
  • May attract private equity interest given its size and shareholding structure.
  • Maintain Add rating and target price of S$1.51, based on 0.8x CY17 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.

Automotive segment still key driver

  • The automotive segment will continue to be a key focus for Sunningdale Tech. We note that this segment was the only segment with strong revenue growth when the company reported its 3Q16 results. Automotive-related sales grew 7.0% yoy in 3Q16, driven by increased orders from new and existing customers. Sunningdale Tech also guided that its order backlog for this segment remained robust.
  • As at 9M16, the automotive segment contributed 36% to revenue, the consumer/IT segment contributed 39% to revenue while the healthcare segment contributed 7% to revenue. The balance 17% of sales was contributed by the lumpy mould fabrication segment.

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.

Maintain Add

  • Maintain Add with a target price of S$1.51 as we rolled over to FY17F, based on an unchanged 0.8x (ROE: 6.8%, COE: 8.6%, zero growth) P/BV multiple.
  • The completion of the construction of the Chuzhou plant will help mitigate cost pressure from FY17F onwards.
  • Downside risks remain unfavourable exchange rates and pull-back in customers’ orders.

William Tng CFA CIMB Research | 2016-12-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.510 Same 1.510