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

MEMTECH INTERNATIONAL LTD BOL.SI

Memtech International - Ceasing Coverage

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.

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).

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 | http://www.ocbcresearch.com/ 2017-08-14

OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 99998 Same 0.850