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

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.



Special dividend of SGD0.008 cents announced. 

  • 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%.


Over SGD30m war chest for M&As. 

  • 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.


Smart cities and technology upgrades to boost demand. 

  • 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.


Positive long-term growth prospects. 

  • 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.


Long term growth on track. 

  • 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



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