Sunningdale Tech - CGS-CIMB Research 2019-11-11: Still Challenging


Sunningdale Tech - Still Challenging

  • We deem Sunningdale Tech's 3Q19 core net profit to be in line at 70% of our full year forecast because it incurred S$0.3m net losses in 1H19.
  • Gross profit margin improved by 2.9% pts q-o-q to 12.5% in 3Q19 due to cost management, which was encouraging.
  • We maintain our REDUCE call as we expect weak 4Q results still.
  • Dividend yield of 6.30% will cushion the downside.

Results deemed in line

  • SUNNINGDALE TECH LTD (SGX:BHQ) reported a loss of S$0.3m in 1H19. Against that, this quarter’s results were more encouraging. See Sunningdale Tech AnnouncementsSunningdale Tech Latest News.
  • Demand weakness remains with 3Q sales down 4.2% y-o-y as all business segments reported weaker y-o-y sales. Gross profit margin however improved from 9.6% in 2Q19 to 12.5% in 3Q19 as cost control improved. There were no major non-operating items in this quarter’s results.

Segmental performance

  • The automotive segment’s revenue decline was due to a decrease in orders from customers as a result of weakening demand across the global automotive market and end-of-life for certain projects. In the consumer/IT segment, sales fell as Sunningdale Tech chose to exit some lower margin business as well as the general weak market sentiment.

Cautious outlook

  • Sunningdale Tech remains cautious on the outlook for the group. Headwinds cited include rising labour costs, utility costs, price pressure and negative market sentiment amid global trade tensions. In addition, the group continues to be impacted by a slowdown across global automotive markets, especially in China and India. The Consumer/IT segment has also become challenging due to slowing demand from customers. In the Healthcare segment, the group remains positive as it has secured new projects from new and existing customers.
  • On the positive side, mass production at the group’s latest manufacturing facility in Penang has begun and utilisation at this new Penang facility is expected to gradually improve.
  • Similarly, the group has completed the relocation of its parts operations from one plant in Shanghai to Chuzhou in 3Q19.

Maintain REDUCE

  • Our Target Price is unchanged at S$1.14 (based on its 13-year average P/BV of 0.57x) on FY19F book value per share. See Sunningdale Tech Share PriceSunningdale Tech Target Price.
  • Upside risks include new order wins/customers. De-rating catalysts include a prolonged US-China trade war.
  • We think FY19 forecast of 6.30% dividend yield should cushion the share price decline. See Sunningdale Tech Dividend History.
  • Net gearing remains a minimal 0.1x.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-11
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 1.140 SAME 1.140