Nam Lee Pressed Metal Industries - Phillip Securities 2017-05-17: Balance Sheet Shows Strength

Nam Lee Pressed Metal Industries - Phillip Securities 2017-05-17: Balance Sheet Shows Strength NAM LEE PRESSED METAL INDS LTD G0I.SI

Nam Lee Pressed Metal Industries - Balance Sheet Shows Strength

  • 1H17 revenue met 50% of our full year forecast.
  • 1H17 gross revenue met 43% of our full year forecast.
  • 1H17 PATMI met 53% of our full year forecast.

PATMI is ahead, keeping our forecast intact 

  • While 1H17 PATMI is ahead at 53% of our full year forecast, gross profit is lagging. Lower gross margin was due to a combination of two factors: change in product mix and material cost. 
  • Higher material cost is not a major concern at this time, as Nam Lee uses derivative instrument to hedge material cost. The effect of higher material cost offset the other income line through a gain in derivative. Consequently, the offsetting effect has kept 1H17 net profit margin relatively stable at 8.1% from 8.6% a year ago.

Trade receivables were collected, halving the account 

  • There was also an improvement in trade receivables collection this quarter. Trade receivables halved to $22.5 million from $44.4 million a quarter ago, substantially contributing to the $7.0 million increase in cash balance to $41.8 million. For context, average trade receivables over the last three FYs was $34.2 million and average cash balance was $40.0 million.

Clean balance sheet with cash hoard 

  • Net cash position (cash less total borrowings) of $38.47 million is 15.9 cents/share (~44% of market capitalisation). 
  • Nam Lee carries little debt on its balance sheet, with debt-to-equity ratio of 2.6% and continues to earn a net interest income. The current-asset value (current assets minus total liabilities) of 35.8 cents/share should be a floor to price downside.

Maintain "Buy" rating with unchanged DCF-derived target price of $0.52 

  • Our target price gives an implied forward P/E multiple of 12.4x over FY17F earnings, versus the Straits Times Index forward P/E multiple of 14.8x (Source: Bloomberg). 
  • The last close price of $0.36 offers an attractive estimated dividend yield of 5.6%, which does not take into consideration the cash hoard that continues to be retained on the balance sheet.

Richard Leow cFTE Phillip Securities | http://www.poems.com.sg/ 2017-05-17
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 0.520 Same 0.520