Sunningdale Tech Ltd - CIMB Research 2018-04-25: Double Whammy

Sunningdale Tech Ltd - CIMB Research 2018-04-25: Double Whammy SUNNINGDALE TECH LTD BHQ.SI

Sunningdale Tech Ltd - Double Whammy

  • At 5% of ours and consensus forecast, Sunningdale Tech's 1Q18 core net profit was below expectations. Gross profit margin (1Q18:12.7%) is into its third quarter of consecutive decline since peaking at 15.6% in 2Q17.
  • Key one-off item in 1Q18 results were FX losses of S$5.2m.
  • Management cites an increasingly competitive business landscape in the rest of 2018.
  • Maintain ADD. Our target price is cut to S$2.50, based on 1.23x FY18 P/BV (previously 1.37x FY18 P/BV), as ROEs decline.



1Q18 below expectations

  • Sunningdale Tech's 1Q18 core net profit was below expectations due to the 12.2% y-o-y decline in the Consumer/IT business segment. As utilisation rates fell, 1Q18 gross profit margin fell to 12.7%. 
  • Marketing and distribution expenses decreased 15.1% y-o-y to S$3.3m due to lower staff costs and related professional fees.


Explaining FX impact

  • Sunningdale’s 1Q18 revenue was negatively impacted by the weaker US$ versus the renminbi, ringgit and Singapore dollar. On a constant currency basis, 1Q18 sales would have grown 1% y-o-y. 
  • Gross profit margin excluding exchange rate impact would have been 14% for 1Q18. However, net profit adding back exchange loss (1Q18: loss of S$5.2m) would still have declined by 25.5% y-o-y as various projects went end of life in 1Q18 as well as a decline in demand from customers.


Consumer/IT – only segment that declined in 1Q18

  • The Consumer/IT segment saw 12.2% y-o-y decline in revenue. Sunningdale expects new projects within the Consumer/IT segment to ramp up production progressively in the second half. 
  • Revenue for the Automotive segment grew 2.9% y-o-y while the healthcare segment saw revenue rising 3.1% y-o-y. Mould Fabrication revenue also rose 11.5% y-o-y.


Outlook

  • Management highlighted that the business landscape is increasingly competitive and volatile exchange rates remain an issue for Sunningdale. However, the order backlog across all its business segments remains stable. 
  • Construction of the Penang plant has been completed and pilot runs for mass production for products in the Consumer/IT segment are currently underway with production ramp up scheduled for 2H18.


Maintain ADD

  • We moderate our sales/gross margin assumption, leading to a 25.8%/10.5%/6.4% decrease in core FY18-20 EPS forecasts. Our target FY18F P/BV multiple falls to 1.23x FY18F (1.37x previously). 
  • Based on FY18F BVPS of S$2.03, our new Target Price is S$2.50. 
  • We maintain our ADD call, with better cost management as a potential catalyst. Slowdown in customer orders is a downside risk.





William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-04-25
SGX Stock Analyst Report ADD Maintain ADD 2.50 Down 2.820



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