Avi-Tech Electronics - RHB Invest 2020-04-15: Resilient Despite Disruption; Keep BUY

AVI-TECH ELECTRONICS LIMITED (SGX:BKY) | SGinvestors.io AVI-TECH ELECTRONICS LIMITED (SGX:BKY)

Avi-Tech Electronics - Resilient Despite Disruption; Keep BUY

  • Keep BUY, DCF-based SGD0.50 Target Price implies 39% upside with c.7% 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 should be a much better year, with earnings having likely bottomed in FY19.
  • We remain positive on Avi-Tech Electronics, and expect to see FY20F EPS up by 12% y-o-y.



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 Electronics’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. GPM improved significantly to 39.7% in 2QFY20, from 27.9% 1QFY19.
  • We expect it to continue booking robust numbers, as we move into 2HFY20.


Little impact from COVID-19.

  • As its factory is in Singapore, production is not impacted despite the “circuit breaker” introduced in Singapore to stem the spread of COVID-19. Avi-Tech Electronics is also considered a part of the supply chain for essential goods. However, we understand that its clients’ supply chain has been disrupted slightly. This may impact its FY21F performance, if the COVID-19 pandemic worsens further, with lockdowns further extended globally.


7% yield.

  • 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, DPS totalled 2.3 SG cents, which translated to 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.


Maintain BUY.



See also report:






Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-15
SGX Stock Analyst Report BUY MAINTAIN BUY 0.500 SAME 0.500



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