Sunningdale Tech - CGS-CIMB Research 2020-03-02: Covid-19 To Disrupt 1Q Performance

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SUNNINGDALE TECH LTD (SGX:BHQ)

Sunningdale Tech - Covid-19 To Disrupt 1Q Performance

• Sunningdale Tech (SGX:BHQ)'s FY19 net profit in line with our expectations.
• We think Covid-19 outbreak will affect 1Q20 negatively.
• Upgrade to HOLD given 6.60% dividend yield support, below book valuation and with the automotive segment slowdown priced in.

FY19 in line

• Sunningdale Tech's FY19 net profit of S$8.0m was in line with our expectation. Excluding foreign exchange losses of S$1.1m and retrenchment costs of S$1.3m, core net profit was S$11.9m.
• A final DPS of 5 Scts was declared. Cash balance increased to S$103.4m as at end-Dec 2019 versus S$88.7m as at end-Dec 2018.
• Net gearing was 0.1x as at end-Dec 2019, with net debt at S$23.8m.

Healthcare was a bright spot

• In terms of segmental performance, the healthcare segment was the only bright spot with revenue up 1.0% y-o-y in FY19. The automotive segment’s revenue fell 9.2% y-o-y while the consumer/IT segment’s revenue fell 7.7%. Mould fabrication sales also fell 6.1% y-o-y.

Covid-19 likely to have a negative impact on 1Q20 performance

• On top of the seasonally weaker first quarter due to the Lunar New Year holidays in China, we think movement restrictions and quarantine requirements due to the Covid-19 outbreak in China lowered Sunningdale Tech's output at its China factories. The automotive segment also continues to suffer from poor end consumer demand.

Upgrade to Hold

• Factoring in the larger outstanding number of shares due to employee stock options exercised in FY19, our Target Price is lowered to S$1.10 (still based on its 13-year average P/BV of 0.57x) on FY20F book value per share.
• See Sunningdale Tech Share Price; Sunningdale Tech Target Price; Sunningdale Tech Analyst Reports; Sunningdale Tech Dividend History; Sunningdale Tech Announcements; Sunningdale Tech Latest News.
• Upside risks include new order wins/customers.
• De-rating catalysts include the US-China trade war and further deterioration of the Covid-19 outbreak.
• We think
  1. the slowdown in the automotive business is priced in,
  2. FY20F forecast of 6.6% dividend yield should support the share price and
  3. net gearing of 0.1x and current market conditions could throw up acquisition opportunities.
• Hence, we upgrade to Hold.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-02

SGX Stock Analyst Report HOLD UPGRADE REDUCE 1.10 DOWN 1.140