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.

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.

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.

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.

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.

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