AVI-TECH ELECTRONICS LIMITED (SGX:BKY)
Avi-Tech Electronics - Net Cash Dividend Yield Play
- Avi-Tech Electronics's FY20 revenue 10% below our and consensus expectations.
- Excluding government grants, FY20 net profit was in line with our and consensus expectations.
- Reiterate ADD with a higher Target Price of S$0.492 as we roll over our valuation to FY21F.
Avi-Tech Electronics FY20 net profit in line
- Avi-Tech Electronics (SGX:BKY)'s FY20 (Jul 2019 to Jun 2020) revenue fell 12.5% y-o-y to S$29.4m due to the impact from the COVID-19 pandemic. FY20 revenue was 10% below our and Bloomberg consensus forecasts.
- Avi-Tech Electronics' FY20 net profit grew 28.5% y-o-y to S$6.0m, driven by a better revenue mix and reduction in operating expenses. FY20 net profit was 11% above our forecast and 6% above Bloomberg consensus’. Excluding S$0.6m in COVID-19 related government grants, FY20 net profit would have been in line with our and consensus expectations.
- Gross profit margin in FY20 was 35.8% vs. 31.4% in FY19 as the higher-margin burn-in services segment accounted for 38% of FY20 revenue vs. 31% in FY19.
- A final DPS of 1.0 Scts and a special DPS of 0.5 Scts were declared.
Cautious outlook
- Avi-Tech Electronics is cautious on its FY21 outlook, citing the ongoing threats posed by the COVID-19 pandemic to economic recovery and the worsening trade war between the United States and China. In addition, Avi-Tech Electronics notes that Singapore’s Ministry of Trade and Industry (MTI) is projecting a 5-7% decline in Singapore's economy for 2020F. MTI also warned that even with an expected pick-up in the second half of the year, the global economic outlook continue to be significantly uncertain.
- Avi-Tech Electronics’ strategy to ride out the current tough economic conditions is to focus on increasing its core competencies, reskilling and upskilling its workforce, improving productivity, and enhancing efficiencies, while continuing to focus on stringent cost management. The group has invested S$0.5m for a minority stake in a robotics software solutions company and will continue to explore new opportunities through strategic partnerships, business alliances or M&As complementary to its business, and on emerging industries.
Reiterate ADD on Avi-Tech Electronics
- We cut our Avi-Tech Electronics' FY21F and FY22F revenue forecasts by 4.8% and 2.3% respectively, given the slower order momentum and cautious outlook. Our FY21F EPS is reduced 0.04% while FY22F EPS is increased 0.02% due to a slight change in our operating expenses forecast. We also introduce our FY23 forecasts.
- We roll over our valuation to FY21F, reiterating our ADD recommendation on Avi-Tech Electronics with a higher target price of S$0.492, now based on 1.58x P/BV multiple (previously 1.42x), derived from the Gordon Growth Model (COE: 7.8%; ROE: 12.0%).
- See Avi-Tech Electronics Share Price; Avi-Tech Electronics Target Price; Avi-Tech Electronics Analyst Reports; Avi-Tech Electronics Dividend History; Avi-Tech Electronics Announcements; Avi-Tech Electronics Latest News.
- Downside risks are deterioration in customer demand due to the escalation of the COVID-19 outbreak.
- Potential re-rating catalysts are accretive M&As, and better-than-expected customer demand.
William TNG CFA
CGS-CIMB Research
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Caleb PANG Huan Zhong
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-08-28
SGX Stock
Analyst Report
0.492
UP
0.422
