Memtech International - OCBC Investment 2017-02-27: Exciting prospects for CE segment in 2017

Memtech International - OCBC Investment 2017-02-27: Exciting prospects for CE segment in 2017 MEMTECH INTERNATIONAL LTD BOL.SI

Memtech International - Exciting prospects for CE segment in 2017

  • FY16 results beat expectations.
  • Trading at 4.6% FY17F yield.
  • Fair value increases to S$0.77.

Strong results in 4Q16 

  • Memtech’s FY16 bottom line beat our expectations on a solid set of results, with a jump in contribution from its Consumer Electronics segment. 
  • Memtech's FY16 revenue increased 11.8% to US$159.0m, or 99.4% of our forecast, while PATMI dropped 22.8% to S$6.3m, or 116.6% of our forecast. Underlying these results is a strong recovery from the loss made in 2Q16. 
  • 4Q16 revenue increased 25.5% YoY to US$47.9m, which was followed by an increase in gross profit margin level from 19.0% in 4Q15 to 19.2%. 
  • 4Q16 PATMI increased 5.9% to US$4.0m; after stripping out the write back of allowance for doubtful receivables of US$1.5m recorded in 4Q15, the YoY increase in 4Q16 PATMI comes up to around +72%.

CE segment to be the star in 2017 

  • On a YoY basis, 4Q16 automotive segment revenue grew 31%, telecommunications fell 32%, consumer electronics jumped 72%, and industrial & medical grew 5%. 
  • In 2017, we expect a flattish performance from Memtech’s automotive segment given that China’s tax subsidy for smaller engine cars has been halved after the end of 2016, a factor that should be mitigated by the ramp-up in some of Memtech’s automotive projects. 
  • We expect the telecommunications segment to continue its revenue decline while consumer electronics (CE) revenue is boosted by additional projects from Beats.

FV increases to S$0.77 

  • Overall, FY17 revenue is expected to increase +6.1% this year, while the gross profit margin is forecasted to increase from 16.0% in FY16 (17.5% in FY15) to 17.8% in FY17 with the favorable change in product mix. 
  • The key risk we see going forward are sudden delays in CE projects, which in turn may result in unnecessary cost increments during the quarter (e.g. more labour hired, more capacity outsourced) without an attendant increase in revenue. This was one of the reasons behind Memtech’s 2Q16 net loss.
  • After applying our new FY17 EPS forecasts against an 11.1x PE and a 7% discount for currency risk, our FV increases from S$0.76 to S$0.77. Our forward FY17 dividend yield stands at 4.6%. 
  • We downgrade Memtech from Buy to HOLD against its last closing price. Longer term investors are encouraged to collect shares at S$0.60 and lower.

Deborah Ong OCBC Investment | 2017-02-27
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.770 Up 0.760