Sunningdale Tech Ltd - CGS-CIMB Research 2018-11-09: Margin Pressure To Continue

SUNNINGDALE TECH LTD (SGX:BHQ) | SGinvestors.io SUNNINGDALE TECH LTD (SGX:BHQ)

Sunningdale Tech Ltd - Margin Pressure To Continue

  • Aided by a foreign exchange gain of S$2.3m, Sunningdale Tech achieved 80.5% of our FY18F net profit forecast.
  • Gross profit margin continued to decline (12.3% in 3Q18 versus 14.3% in 3Q17) due to higher costs and pricing pressure from customers.
  • We leave our forecasts and Target Price unchanged as we believe 4Q18 will remain challenging. Maintain ADD.



Margin erosion continues

  • Sunningdale Tech’s 3Q18 revenue grew 1.9% y-o-y, driven by growth across its business segments except the mould fabrication segment which reported a 9.9% y-o-y decline in revenue.
  • Gross profit margin fell to 12.3% in 3Q18 versus 14.3% in 3Q17 and 12.7% in 2Q18. The margin erosion was due to an increase in labour, utilities and material costs as well as pricing pressure from customers.


Aided by FX gain

  • Sunningdale Tech’s 3Q18 net profit was aided by a foreign exchange gain of S$2.3m. While headline net profit fell only 2.5% y-o-y, adjusted net profit (excluding the S$2.3m foreign exchange gain) was 51.6% y-o-y lower.
  • No dividend was declared for 3Q18. The foreign exchange gain of S$2.3m accounted for 22.6% of 3Q18 pretax profit.


Outlook to remain challenging


  • Sunningdale Tech sees continued challenges in the form of negative market sentiment arising from the trade war, continued increase in wages, volatile foreign exchange rates and pricing pressure from customers. The group’s order backlog across its business segments remains stable.
  • Sunningdale Tech has seen an increasing amount of business queries from both new and existing customers who are confident in the group’s ability to handle projects on a global basis.


Maintain ADD

  • We maintain our ADD call and target price, which is based on our ROE/COE-derived P/BV of 8.88x on FY88F BVPS. A slowdown in customer orders is a downside risk.
  • Upside earnings risk in 8Q88 could come from the successful completion of the sale of actories in Zhongshan, China, which is currently ongoing.





William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-09
SGX Stock Analyst Report ADD MAINTAIN ADD 1.840 SAME 1.840



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