Memtech International (MTEC SP) - UOB Kay Hian 2018-02-09: Looking To A Strong 2018

MEMTECH INTERNATIONAL LTD BOL.SI

Memtech International (MTEC SP) - Looking To A Strong 2018

In its upcoming 4Q17 results announcement, Memtech is likely to report a decent performance.
Going into 2018, Memtech has indicated new project wins from Chinese automobile companies and a rosy outlook for the consumer electronics segment with new projects from major customer Beats and a new customer which is a major US consumer electronics company.
Maintain BUY with a higher PE-based target price of S$1.43 (previously S$1.33).

Memtech International (Memtech) has indicated new projects from Chinese automobile companies. The company has highlighted two new customers:
1. Next Car (NIO) which is a global start-up based in China that designs high performance, premium electric, autonomous vehicles, and
2. WEY which is a premium SUV brand which is part of the Great Wall Motors Company.
Even though NIO and WEY are still in their infancy, the potential for both companies to scale-up quickly is enormous.
NIO launched its first mass-produced ES8 model in Dec 17 which starts at about Rmb448,000 - about half the price of Tesla’s Model X which starts at about Rmb836,000. NIO enjoys the advantage of Beijing’s state subsidies for electric vehicles which gives it price advantage over Tesla in China.
WEY saw a strong showing at the Guangzhou Auto Show which was held in late-Nov 17. WEY has hopes to become the first Chinese branded vehicle to enter the US car market and their SUVs meet toughest US standards.
Another key customer of Memtech, Tesla, had been hit by production delays in 4Q17 but Tesla’s CEO Elon Musk has indicated that obstacles to production were getting smaller with every week and the company should be on track to hit weekly production rates of 2,500 by the end of 1Q18 and 5,000 by the end of 2Q18.

Memtech has highlighted two new project wins from audio giant Beats, has secured Bose as a new customer and has JBL as a potential customer to which Memtech has submitted prototype samples.
Memtech has also received tooling orders for a maiden project from a major US consumer electronics company for multiple projects in their pipeline which includes accessories for their phone model. The company expects to go into mass production sometime in 2H18.
We are very positive on this development for the consumer electronics segment as it demonstrates to us Memtech’s ability to not only retain existing customers but also gain new bluechip customers.

Given Memtech’s strong balance sheet, exceptional one-off gain from the sale of land in China and consistent dividend track record, we think the company is likely to pay out a dividend of at least 3.5 S cents /share which will translate to a yield of 2.7% for 2017.
The company could pay out more depending on future capex and reinvestment needs.

We have raised our 2018-19 core net profit estimates by 10.9-11.0% as we fine-tune and lower our sales and marketing and increase our growth assumption rate for the consumer electronics segment to 35% from 25% previously for 2018.

Maintain BUY on the company with a higher PE-based target price of S$1.43 (previously S$1.33) as we peg it to peers’ average 2018F PE of 11.6x.
We could see upside to our target price should the major US consumer electronics company go into mass production earlier than expected.

Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2018-02-09

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.43 Up 1.330