Memtech International (MTEC) - UOB Kay Hian 2019-04-26: 1Q19 Results In Line In A Seasonally Weak 1Q

MEMTECH INTERNATIONAL LTD (SGX:BOL) | SGinvestors.io MEMTECH INTERNATIONAL LTD (SGX:BOL)

Memtech International (MTEC) - 1Q19: Results In Line In A Seasonally Weak 1Q

  • MEMTECH INTERNATIONAL LTD (SGX:BOL)'s 1Q19 core net profit fell 8% y-o-y mainly due to lower government incentives, accounting for 10% of our full-year estimate. We deem this in line given that 1Q is a seasonally weaker quarter.
  • We maintain our view that 2019 should be a better year on the back of more new projects and a boost from several major projects delayed from 2018.
  • Maintain BUY and target price of S$1.33, based on 11.0x 2019F PE, pegged to peers’ average.



1Q19 RESULTS


Memtech International's 1Q19 results in line.

  • MEMTECH INTERNATIONAL LTD (SGX:BOL)’s revenue grew 12%, as the decline in the automotive segment was more than offset by the consumer electronics segment. In addition, gross margin remained stable y-o-y at 14.6% and gross profit grew by 11% y-o-y.
  • The decline in net profit was mainly due to a 57% y-o-y decline in other operating income to US$0.4m. This was due mainly to lower government incentives received in 1Q19 as compared with 1Q18.

Expect 2019 to be a good year on new projects and boost from major projects delayed from 2018.

  • We expect net profit for 2019 to grow 31% y-o-y, after a 13% y-o-y decline in 2018. The main growth driver is expected to come from several new projects in the consumer electronics and medical segments.
  • Production in 1H19 is expected to pick up significantly as several new and existing multinational customers are targeting new product launches.

Exploring new manufacturing location.

  • To mitigate any potential impact of trade war, Memtech International is in the preliminary stages of exploring potential manufacturing locations in new geographic regions such as Vietnam.


STOCK IMPACT


Good rerating catalyst from better earnings outlook.

  • Memtech International’s business in 2019 should get a lift from more new projects, including a major US MNC client in the consumer electronics segment.


EARNINGS REVISION/ RISK

  • We maintain our net profit forecasts.
  • Risks include higher-than-expected raw material costs, unfavourable forex rates, further pricing pressure from customers and lower-than-expected utilisation.


VALUATION/ RECOMMENDATION

  • Maintain BUY and our target price of S$1.33, pegged to peers’ average 2019F PE of 11.0x.


SHARE PRICE CATALYST

  • Lower raw material prices.
  • Faster-than-expected ramp-up of a new US MNC customer.
  • Potential privatisation.





John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-04-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.330 SAME 1.330



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