Sunningdale Tech Ltd - CIMB Research 2017-02-27: Business environment still looks challenging

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SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech Ltd - Business environment still looks challenging

• FY16 core net profit was spot on at 100% of our full-year forecast.
• Although FY16 revenue growth was just 1.5% yoy, the automotive segment’s revenue rose 12% yoy.
• Key one-off gains in FY16 were forex gain of S$9.0m and gain on sale of PPE of S$5.0m.
• Management remains cautious on the outlook for FY17.
• Maintain Add. Our target price is raised to S$1.56 on unchanged 0.8x FY17 P/BV.

In-line FY16 results 

• FY16 core net profit was in line at 100% of our full-year forecast. Given earlier restructuring efforts, gross profit margin inched up to 13.8% in FY16 vs. 13.5% in FY15.
• The balance sheet also improved with net cash of S$15.5m in FY16 (FY15: S$1.1m). A pleasant surprise was the proposed higher DPS of S$0.06 versus S$0.05 in FY15.

Automotive segment still a key driver 

• The automotive segment continued to be the only segment with strong revenue growth.
• FY16 revenue growth for this segment was 12.0% yoy, driven by increased orders from new and existing customers. 
• Sunningdale guided that its order backlog for this segment remained robust and growth could be the highest in this segment as earlier programmes by customers enter the production ramp stage.

Outlook still cautious 

• Management’s outlook remains cautious. It noted that global growth stayed subdued while key challenges cited were 
  1. cost pressures from higher wages in Asia, and 
  2. pricing pressure from customers. 
• The company’s cost reduction effort with a new manufacturing plant in Chuzhou, China, is largely completed. To further manage production costs and support customers, Sunningdale will add a new manufacturing plant in Penang in 2017.

Maintain Add 

• We raise FY17-18F core EPS forecasts by 19-20% as we adjust for lower operating expenses given the success of its restructuring efforts. We also relax our core net profit definition and add S$2.0m of other income forecasts into our estimates. 
• Downside risks remain unfavourable exchange rates and pull-back in customers’ orders. 
• We maintain our Add call with a higher target price of S$1.56, still based on a 0.8x (ROE: 6.8%, COE: 8.6%, zero growth) FY17 P/BV multiple.

William Tng CFA CIMB Research | http://research.itradecimb.com/ 2017-02-27

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.560 Up 1.510