Avi-Tech Electronics - RHB Invest 2017-08-21: Positive Outlook Ahead

AVI-TECH ELECTRONICS LIMITED BKY.SI

Avi-Tech Electronics - Positive Outlook Ahead

Avi-Tech enjoyed a strong 4QFY17, with NPAT surging 62% YoY. A special dividend of SGD0.008 was also announced, bringing total FY17 dividend to SGD0.028, representing an attractive yield of 6%.
We came away from the briefing still positive on its long term growth, which would likely come from electric cars and increased electronics in the automotive sector.

We also think that there is a high possibility it would likely acquire an accretive target in the near term.
As a result, we roll over our DCF-based TP to a slightly higher SGD0.59 (from SGD0.52, 26% upside), representing a 12x FY18F P/E. Maintain BUY.

As at 2QFY17 (Jun), management has implemented a dividend payout policy of at least 30% of total profit. This suggests a positive outlook for Avi-Tech Electronics’ (Avi-Tech) as well as returning value to its shareholders.
In fact, the group has a track record of paying out at least 50% of NPAT over the past few years and management said it would likely maintain this ratio going forward. As a result, a special dividend of SGD0.008 was also announced, bringing total FY17 dividend to SGD0.028, representing an attractive yield of 6%.

With a > SGD30m war chest at its disposal, management is looking at accretive acquisitions and new avenues of growth that would fit synergistically with the company’s existing service offerings.
We believe it has likely learnt from past lessons and would utilise its cash more efficiently going forward. With an accretive acquisition, Avi-Tech would be able to enhance NPAT drastically, with a combination of debt and cash financing, in our view.

Avi-Tech’s burn-in services segment is well-positioned to benefit from the rising sophistication of vehicles and, ultimately, the advent of driverless vehicles, in our view.
With other disruptive technologies in the Internet of Things (IoT) era and march towards cloud businesses and smart cities, we believe another wave of demand for semiconductor burn-in and other related services is coming. This ought to be a further boost to the group.

We believe that Avi-Tech’s long-term growth prospects are positive, in line with the digitalisation macroeconomic trends and increased electronics in the automotive sector. As a result, we view that a conservative and stable annual NPAT growth rate of 10-15% would be sustainable over the longer term.

Going forward, we expect the growth for Avi-Tech for FY18F to be stable, around 10-15% pa. With its strong balance sheet and positive cash flow generation, we think that there is a high possibility it would acquire an accretive target in the near term and possibly, a positive re-rating catalyst.
As a result, we remain positive on Avi-Tech and maintain our BUY call with a higher DCF-based SGD0.59 TP implying a 12x FY18F P/E.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-21

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.59 Up 0.520