AVI-TECH ELECTRONICS LIMITED (SGX:BKY)
Avi-Tech Electronics - Superb 2Q20, Likely Stellar FY20F; Keep BUY
- Keep BUY with a new DCF-based SGD0.50 Target Price from SGD0.44, 28% upside with c.6% FY20F (Jun) yield.
- Avi-Tech Electronics (SGX:BKY) reported a strong 2Q20, with PATMI surging 46.7% y-o-y to SGD1.4m.
- The semiconductor sector’s slowdown has likely bottomed out for the company, and its quarterly performance should improve ahead. FY20 ought to be a much better year, with earnings having likely bottomed in FY19.
- We remain positive on the stock, and lift our Target Price after adjusting FY20F EPS by +12%.
Likely a strong FY20F, led by the burn-in revenue segment.
- With the sector slowdown in effect since 2018, we believe the correction has bottomed – so the outlook should improve, especially with China and the US having struck a Phase 1 trade deal. Avi-Tech’s performance should continue to pick up in 2HFY20, with strong growth from burn-in services, which has much higher gross margins. This, coupled with previously done cost-cutting measures, should help improve margins as well.
- Avi-Tech’s gross margin improved significantly to 39.7% in 2QFY20 from 27.9% 1QFY19. We expect it to continue charting strong performances as we move into 2HFY20.
6.4% yield with improving fundamentals.
- With a net cash balance sheet and strong operating FCF, management should continue to reward shareholders with attractive dividends despite the drop in profits.
- For FY19, a total of 2.3 cents DPS was declared, translating into a PATMI payout ratio of 84.7%. A higher interim DPS of 1 cent was paid in 2QFY20 vs 0.8 cents a year ago due to its strong performance. See Avi-Tech Dividend History.
- We expect management to reward shareholders with the same or more going forward, despite a special dividend given in FY19.
We maintain our call.
- Other than its handsome yield, management is actively exploring M&A opportunities and hopes to close a deal by end 1H20. Any potential earnings-accretive M&A should be a positive.
- With a net cash balance sheet and good dividends, we are positive on the stock. This is because investors have been well rewarded – if we look at its dividend trends – even when earnings were at the bottom of the cycle.
- See Avi-Tech Share Price; Avi-Tech Target Price; Avi-Tech Analyst Reports; Avi-Tech Dividend History; Avi-Tech Announcements; Avi-Tech Latest News.
- A key downside risk is a slowdown in the economy. The opposite situation presents an upside risk.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-02-17
SGX Stock
Analyst Report
0.50
UP
0.440
