AVI-Tech Electronics Ltd - CIMB Research 2018-01-09: Powering Into The Future

AVI-Tech Electronics Ltd - CIMB Research 2018-01-09: Powering Into The Future AVI-TECH ELECTRONICS LIMITED BKY.SI

AVI-Tech Electronics Ltd - Powering Into The Future

  • Avi-Tech Electronics Ltd (AVIT) offers burn-in and engineering services for customers in the semiconductor, electronics and life science industries.
  • Production/testing facilities are based in Singapore and its in-house burn-in test design capability helps reduce its capex needs.
  • Autonomous driving/Internet of Things are seen as potential earnings growth drivers by management. 
  • Net cash balance sheet as at end-Sep 2017. Formal dividend payout policy of 30%.
  • AVIT trades at an historical FY6/17 P/E of 11.9x vs. its regional peer group average of 16.5x.

Company description 

  • Incorporated in Singapore in 1981 and listed on the Mainboard of the SGX in 2007, Avi-Tech Electronics Limited (AVIT) is a total solutions provider for burn-in and engineering services for the semiconductor, electronics and life sciences industries. Its core business segments offer burn-in services, manufacturing and printed circuit board assembly (PCBA) services, and engineering services.
  • Its customers are global leaders, including original equipment manufacturers (OEMs) of semiconductor, automotive, cloud networking and industrial products.
  • Located in Singapore, AVIT’s headquarters and production facility support all of its business segments and it is equipped with advanced burn-in systems, many of which are designed and fabricated in-house. AVIT has market presence in Malaysia, Thailand, the Philippines, Taiwan, China, the US and Europe.

Business segments 

Burn-in services - 

  • Avi-Tech Electronics Ltd (AVIT) provides static burn-in, dynamic burn-in, test during burn-in and high-power burn-in for semiconductor manufacturers, serving the segment of the industry that requires fail-safe or high reliability semiconductor devices, including microprocessors for automotive and networking products.
  • Under this business segment, AVIT also provides tape and reel services that employ the use of machines to deliver customers’ finished products in reel form.
  • Currently, AVIT has machines to handle different packaging formats with roundthe-clock delivery and collection services for its customers.

Manufacturing and PCBA services – 

  • Avi-Tech Electronics Ltd (AVIT) is involved in the design and manufacturing of a wide range of burn-in boards for various types of burn-in systems, as well as boards for other types of reliability tests such as high temperature operating life test and highly accelerated stress test. AVIT is qualified and licensed to build burn-in boards for high-power devices, as well as to provide niche PCBA services for the medical, mobile communications and aviation industries.

Engineering services - 

  • Avi-Tech Electronics Ltd (AVIT)’s engineering services range from design, development and full turnkey outsourced manufacturing and system integration of semiconductor equipment and lab automation systems for the life sciences and biotech industries. AVIT also recommends enhancements and improvements to its customers’ designs as part of its value-added service.
  • One of its competitive strengths is the provision of system integration services for refrigeration-based high-power burn-in systems and lithography tool for semiconductor front-end applications.
  • Currently, AVIT’s integration projects include charged coupled device cameras for astronomy and life sciences applications, digital imagers, as well as customised LED drivers and products for various applications. In addition, AVIT also distributes and services third-party mixed signal testers that are used in the semiconductor industry. 

Potential new earnings growth drivers 

  • According to management, Avi-Tech Electronics Ltd (AVIT) is benefitting from the ramp-up in production of automotive and networking semiconductor chips, which has fuelled the need for new and different types of burn-in boards. Similarly, AVIT’s burn-in services business segment has been called in by customers to meet the increasing burnin requirements and dynamics of the market segments that require fail-poof devices for safety and efficiency.
  • Management has noted that in the march towards fully driverless vehicles, there is likely to be an ever-increasing number of sensors, microcontrollers and power management components required. Additionally, regulations pertaining to carbon dioxide emissions, electrification of cars, advanced vehicle safety and comfort systems and the increased demand for vehicles in the developing markets are other factors that could drive growth of the automotive semiconductor sector forward in the near term. Management cited estimates (source: https://www.businesswire.com/news/home/20170406006014/en/45.9- Billion-Growth-Opportunities-Global-Automotive-Semiconductor) that the global automotive semiconductor market will reach an estimated US$45.9bn by 2022 and projected compound annual growth rate of 6.4% from 2017 to 2022.
  • Another potentially-significant semiconductor driver highlighted by management is cloud computing, big data and smart cities that are driving up demand for servers and data centres exponentially. For the group, management noted that this would mean increased opportunities for board manufacturing and burn-in services as newer and more powerful microprocessors come on board.

Strong balance sheet 

  • As at end-Sep 2017, Avi-Tech Electronics Ltd (AVIT) was in a net cash position of S$32.4m or S$0.189 per share. Net cash per share as at end-Sep 2017 of S$0.189 represents 38.6% of its share price of S$0.49 on 5 Jan 2018. 
  • Given its strong balance sheet and limited capex needs, the company announced (on 8 Feb 2017) that it was implementing a formal dividend policy of paying out not less than 30% of its net profit. 
  • In FY17, AVIT paid S$0.028 DPS or 68% of FY17 net profit.

1QFY18 performance 

  • Revenue grew 31.3% yoy to S$11.1m in 1QFY18 and gross profit margin was 26.4%. 1QFY18 net profit grew 16.6% yoy to S$1.7m. 
  • Avi-Tech Electronics Ltd generated positive free cash flow of S$1.2m (capex was a mere S$41,000) in 1QFY18.
  • Historical P/E valuation on par with regional industry peers AVIT trades at a historical FY17 P/E of 11.9x versus its regional peer group average of 16.5x. 
  • Among its peers, AVIT has the highest historical FY17 ROE and dividend yield of 14.3% and 5.7%, respectively.

Target Price: N/A

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-01-09
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998.000 Same 99998.000

* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.