Sunningdale Tech - CGS-CIMB Research 2020-08-07: Cost Controls To Tide Over 2H20F


Sunningdale Tech - Cost Controls To Tide Over 2H20F

  • Sunningdale Tech's 1H20 core net profit was above expectations as we were expecting a possible net loss.
  • 2Q20F outlook is challenging given its customers’ limited visibility.
  • Reiterate HOLD as Sunningdale Tech has executed well in reducing operating costs. Dividend yields are also supportive at 5.7% for FY20F.

Averted a loss in 2Q20

  • Sunningdale Tech (SGX:BHQ)'s 1H20 revenue fell 14.7% y-o-y to S$275.1m as all business segments registered revenue declines, except for the healthcare segment which enjoyed y-o-y revenue growth of 17.9%. 1H20 revenue at 48% of our and consensus’ forecasts was within expectations.
  • Sunningdale Tech’s 1H20 revenue decline was due to the global slowdown in the automotive markets and mandatory government closures of the group’s factories due to the COVID-19 outbreak. The healthcare segment, which accounted for 12.6% of 1H20 revenue, saw more orders from new and existing customers.
  • 1H20 net profit of S$8.3m and core net profit of S$1.9m were better than expected, as both our and consensus forecasts were for full-year losses. Exceptional income of S$6.3m was mainly due to government grants, exemptions and fee reductions announced to mitigate the impact of COVID-19. The positive core net profit in 1H20 was due to various measures to reduce operating costs and increase productivity.
  • Interim DPS (1H20: 1.8 Scts; 1H19: 3.0 scts) was reduced by 40% y-o-y to conserve cash.
  • 1H20 operating cash flow was S$45.7m and as at end-Jun 2020, the net cash balance was S$31.3m

2H20F outlook still challenging

  • Sunningdale Tech's 2H20F outlook remains challenging, with headwinds in the form of pricing pressure and negative market sentiment due to continuing US-China tensions. In addition, the COVID-19 pandemic continues to cause considerable uncertainty for the group’s ongoing operations.
  • The automotive segment is expected to experience a longer road to recovery, as orders for existing projects are low due to the impact of COVID-19 across the US and Europe. The consumer/IT segment is seeing a gradual recovery. The healthcare segment continues to be a bright spot, with new projects secured from new and existing customers.
  • Sunningdale Tech said it will remain focused on cost controls and productivity improvements to tide over 2H20F.

Reiterate HOLD on Sunningdale Tech

William TNG CFA CGS-CIMB Research | 2020-08-07
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