Memtech International - OCBC Investment 2017-08-14: Ceasing Coverage

Memtech International - OCBC Investment 2017-08-14: Ceasing Coverage MEMTECH INTERNATIONAL LTD BOL.SI

Memtech International - Ceasing Coverage

  • 2Q17 results within expectations.
  • Opportunities in CE and automotive.
  • Net cash position of ~US$26.8m.

Firm set of 2Q17 results 

  • Memtech International’s 2Q17 results were in line with our expectations. 
  • Revenue grew 20.1% YoY to US$37.8m, forming 23.1% of our FY17 forecast. An increase in sales in the consumer electronics (CE) segment boosted the top-line, contributing to 37.0% of revenue, up from 29.7% in 2Q16. 
  • PATMI reversed from a loss of US$1.4m in 2Q16 to a gain of US$4.9m in 2Q17, arising notably from a one-off US$3.2m gain following the completion of the sale of the group’s Huzhou land & factory. 
  • In the absence of the above-mentioned gain, we estimate that 2Q17 PATMI would have formed ~19.9% of our FY17 forecast, which we deem to be broadly in line with our expectations.

Growth registered in the main segments 

  • Based on our estimates, 2Q17 CE revenue jumped ~49.7% YoY, due in part to the previous delay in the group’s Beats project in 2Q16.
  • Management expects the CE segment to yield a seasonally stronger 2H17 on the back of the traditional holiday season. The group’s automotive segment contributed ~45% of 2Q17’s top-line, or ~US$17.0m, which we estimate represents a ~15.0% YoY increase. 
  • We note that Tesla has now grown in top line contribution, and is now one of the top 10 customers of the group. 
  • Moving forward, we understand from management that there are further opportunities for new projects from both existing (e.g. Continental) and new customers (e.g. Bose).

Healthy balance sheet 

  • Memtech has since realized US$5.9m in sales proceeds following the sale of the group’s Huzhou land & factory. Consequently, the group’s balance sheet has been strengthened further, reflected through its net cash position of ~US$26.8m as of 2Q17, or about 26.9% of its current market capitalisation. 
  • This is in contrast to the group’s net cash position of ~US$22.8m as of 4Q16. This should put the group in good stead, as Memtech continues to pursue new opportunities as mentioned above. 
  • We also do not exclude the possibility of a potential boost in dividends at the end of FY17. 
  • That said, due to a redistribution of internal resources, we are CEASING COVERAGE on the stock.

Joseph Ng OCBC Investment | 2017-08-14
OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 99998 Same 0.850