AVI-TECH ELECTRONICS LIMITED
BKY.SI
Avi-Tech Electronics - Kicking Off FY18 With A Bang
- Avi-Tech had a solid 1QFY18, with NPAT growing 16.6% YoY despite incurring a forex loss and providing an allowance for obsolete inventory that totalled SGD0.23m. This was driven by its manufacturing and PCBA services and burn-in services units, which grew 61% and 14% YoY respectively.
- We remain positive on its outlook, as it may likely benefit from the increased incorporation of electronics in the automotive sector.
- With net cash of SGD32.4m, there is a high possibility it would likely acquire a yield-accretive target over the near term.
- BUY, with a SGD0.59 TP (12% upside).
Robust growth in two business segments.
- Avi-Tech Electronics’ (Avi-Tech) revenue rose 31.3% YoY to SGD11.1m. This was driven by a 61% and 14% YoY growth in its manufacturing and printed circuit board assembly (PCBA) services segment and its burn-in services unit respectively.
- GPM decreased to 26.41% in 1QFY18 (Jun) from 29.54% in 1QFY17. This was mainly on higher revenue contributed by its manufacturing and PCBA services unit, which records narrower GPMs.
Positive long-term growth prospects.
- Its long-term growth prospects are positive, in line with the digitalisation macro-economic trend and increased incorporation of electronics in the automotive sector. Thus, a conservative and stable annual NPAT growth rate of 10-15% would be sustainable over the longer term.
War chest of > SGD32m for M&As.
- With a > SGD32m war chest at its disposal, Avi-Tech is looking at accretive acquisitions and new avenues of growth that would fit synergistically with 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 greatly, with a combination of debt and cash financing, in our view.
Smart cities and technology upgrades to boost demand.
- Its burn-in services unit 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 the march towards cloud businesses and smart cities, we believe another wave of demand for semiconductor burn-in and other related services is coming – which would further boost the group’s prospects.
Long-term growth on track, with M&A as a bonus.
- Going forward, we expect its earnings growth in FY18 to be stable, around 10-15% pa. With its strong balance sheet and positive cash flow generation, there is a high possibility it could acquire a yield-accretive target in the near term and, possibly, trigger a positive re-rating catalyst. As a result, we remain positive on Avi-Tech’s long term growth prospects.
- Maintain BUY, with an unchanged DCF-based SGD0.59 TP implying a 12x FY18F P/E.
- Avitech also offers an attractive FY18F dividend yield of 4.4%.
- A key risk to our call is a slowdown in the economy.
Jarick Seet
RHB Invest
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http://www.rhbinvest.com.sg/
2017-11-14
RHB Invest
SGX Stock
Analyst Report
0.590
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