Sunningdale Tech (SUNN SP) - UOB Kay Hian 2017-08-03: 2Q17 Results Above Expectations; A Pleasant Dividend Surprise

SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech (SUNN SP) - 2Q17 Results Above Expectations; A Pleasant Dividend Surprise

Sunningdale (SUNN) reported strong 2Q17 results with core net profit rising over 57% yoy, driven by stronger gross margins and lower costs.
The group gave upbeat guidance on a seasonally stronger 2H17, instilling confidence in the group’s prospects for the rest of 2017.

Sunningdale Tech’s (SUNN) core net profit rose 57% yoy, driven by higher gross margin and better operational efficiencies which led to lower costs.
Gross margin rose from 13.8% in 2Q16 to 15.6% in 2Q17, attributed to a better sales mix. The group’s high-margin automotive sales from 36.4% of total sales in 2Q16 to 36.9% in 2Q17 while consumer/IT sales rose from 38.3% of 2Q16 total sales to 40% in 2Q17.
Administrative expenses dipped 2.8% yoy to S$$10m while other expenses were reduced by 34.8% to S$3.7m in 2Q17.
SUNN reported forex losses of S$2.6m in 2Q17 due to a weakening US dollar.

The 2H (June-December) typically marks a seasonally stronger half for SUNN’s business as the group has a large manufacturing presence in China and Chinese factories take a long Lunar New Year break during the first quarter of the year.
SUNN indicated that heading into 2H17, business development initiatives are starting to gain more traction as the group receives enquiries from both new and existing customers across all business segments.
Furthermore, by issuing its maiden interim dividend, we take this as management’s confidence in the prospects of the company.

Platinum Equity has offered to take Fisher Tech private in a deal that values the firm at S$152m, or S$3.02/share. This values Fisher Tech at a trailing PE of 13x, P/B of 1.5x and EV/EBITDA of 5.7x.
With Fisher Tech being privatised, there remain only three other PIMs in Singapore - SUNN, Memtech International and Fuyu Corp.

We raise our 2017-19 core net profit estimates by 14.0-16.8% as we raise our gross profit margin estimates from 14.4% to 15.2%, and lower our administrative and other operating expense assumptions.

Maintain BUY with a higher PE-based target price of S$2.51, pegged to peers’ average 2018F PE of 11.4x. Our target price implies 2016 P/B of 1.34x. We reiterate our view that should a privatisation happen, we would likely see further upside to our target price as the most recent PIM acquisition of Fisher Tech was done at 1.5x trailing P/B.
Sunningdale Tech SUNN has been raising dividends throughout the years. We make no change to our dividend forecast and expect 6.5 S cent/share for 2017, translating into a 3.2% yield.

Nicholas Leow UOB Kay Hian | Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-03

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.51 Up 2.040