Sunningdale Tech Ltd - CIMB Research 2017-08-03: Gross Margin Maintained Above 15%

Sunningdale Tech Ltd - CIMB Research 2017-08-03: Gross Margin Maintained Above 15% SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech Ltd - Gross Margin Maintained Above 15%

  • Sunningdale Tech's 2Q17 net profit (+115.3% yoy) was broadly in line, forming 23% of our FY17F forecast. We deem 1H17 net profit as in line, at 44% of our FY17F forecast.
  • Revenue (+6.6% yoy) was within expectations, driven by the automotive segment (+7.9% yoy) and consumer/IT segment (+11.4% yoy).
  • No change to our earnings forecasts or P/BV-based target price. Maintain Add.

Gross margin continued to improve

  • Sunningdale continued to enjoy the fruit of its efforts to lower operating costs. The 2Q17 gross margin improved to 15.6% versus 13.8% in 1Q16 and 15.0% in 1Q17.
  • Excluding foreign exchange losses and retrenchment costs, the adjusted net profit for 2Q17 was S$10.9m (+57.1% yoy).

Strong balance sheet; inaugural interim DPS

  • Sunningdale remained in a net cash position as at end-Jun 17.
  • Net cash from operations grew 89% yoy to S$12.1m. Free cash flow generated in 2Q17 was S$4.4m versus negative free cash flow of S$1.6m in 2Q16.
  • The company also declared an inaugural interim DPS of S$0.025.

Stronger 2H17F

  • Regarding its outlook, Sunningdale guided that its operations continued to face headwinds from rising labour cost, foreign exchange rate volatility and pricing pressure from customers.
  • On a positive note, the company commented that, into the seasonally stronger second half, there were enquiries from new and existing customers across all business segments. The group’s order book remained stable.

Cost reduction efforts to continue

  • As part of its cost reduction efforts, the group will progressively add capacity to its latest factory at Chuzhou, China.
  • The construction of its 20th plant in Penang, Malaysia, is underway and remains on track for completion by the end of 1Q18F.

Maintain Add

  • No changes to our EPS forecasts or P/BV-based target price of S$2.19.
  • We value Sunningdale at 1.11x FY17F P/BV (ROE: 9.6%, COE: 8.6%, zero growth).
  • Downside risks remain unfavourable exchange rates and a pull-back in customer orders.

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-08-03
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.190 Same 2.190