Avi-Tech Electronics - UOB Kay Hian 2020-06-26: Industry Resilient, Demand Still High For Burn-in Specialists


Avi-Tech Electronics - Industry Resilient, Demand Still High For Burn-in Specialists

  • The structural growth of automotive electronic components is ongoing despite the COVID-19 pandemic. Channel checks indicate that demand for burn-in testing remains elevated although some supply chain-related disruptions could result in a slight dip in FY20F revenue.
  • Nevertheless, we reiterate BUY on Avi-Tech Electronics and target price of S$0.57.
  • Current Avi-Tech Share Price translates into an attractive entry at 2.6x FY21F EV/EBITDA and 8.9x PE.

Industry still in upcycle.

  • Works at Infineon, the world’s largest automotive semiconductor manufacturer and Avi-Tech Electronics (SGX:BKY)’s largest client, is healthy given the accelerating adoption of electric vehicles.
  • Despite COVID-19 headwinds and limited visibility on near-term macro conditions, worldwide semiconductor billings rose by an impressive 6.4% y-o-y to an estimated US$136.75b for 4M20, reflecting the industry’s long-term resilience. These positive factors should translate into continued high factory utilisation rates for Avi-Tech Electronics across FY20F and FY21F.

Business as usual.

  • As work scope for Avi-Tech Electronics is classified as essential services, factory utilisation rates are not impacted by the circuit breaker implemented by the government in April-May. However, there may be potential supply chain-related disruptions due to the global lockdowns, which could have resulted in order deferrals for Avi-Tech Electronics to the following quarter.

Jobs Support Scheme to bolster bottom line.

  • About S$0.2m could be received by the company in 2HFY20, following two pay-outs from the Singapore government in April and May. The subsidy is expected to flow directly to the bottom line, which would help offset the slight drop in FY20F revenue. Accordingly, we lower our FY20 net profit forecast by 5.2% to S$5.9m, but keep our FY21 net profit forecast unchanged at S$7.7m.

Avi-Tech's FY20 revenue forecast lowered.

  • Due to the potential logistical delays, we have revised down our FY20 revenue forecast by 8.8% to S$31m.

Avi-Tech's FY21 net profit forecast unchanged.

  • Revenue expansion for FY21F remains on track, in tandem with industry growth forecasted by key clients of Avi-Tech Electronics. As the group continues to shift its sales mix towards the relatively more profitable burn-in services and PCBA segments, as well as with ongoing cost control measures and productivity enhancement, we estimate the FY20-22 gross margin range to stay elevated in the 38-39% region, compared to 28-32% across FY17-19.
  • Accordingly, Avi-Tech Electronics' FY21 net profit is anticipated to grow by 29.2% y-o-y to S$7.7m.

Reiterate BUY and EV/EBITDA-based target price of S$0.57.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-06-26
SGX Stock Analyst Report BUY MAINTAIN BUY 0.570 SAME 0.570