Amtek Engineering Limited:
HOLD (Upgrade from Fully Valued)
Price Target : 12-Month S$ 0.48 (Prev S$ 0.45)
•4Q13 core below but sequential improvement suggests worst is over for now
•New programmes and continuous cost management to drive core earnings growth
•Upgrade to Hold, upped TP to S$0.48 on earnings rollover to FY14F
Small operating losses in 4Q13 vs S$2m profit forecast due to restructuring costs.Headline net profit of S$10.9m included a S$10.8m gain from the divestment of a factory building. Without this gain, 4Q13 would be a small loss of S$0.1m, compared to S$2m forecast. Key variance was c.S$5m of capacity restructuring expenses.
Sales and margins improved sequentially. Sales fell 7% y-o-y but rebounded 9% q-o-q to S$160.7m. Except for Mass Storage and Consumer Elec., all segments grew q-o-q and performed better than expected, thanks to new programmes which offset softer end market demand. Tooling sales hit another record high on more wins, indicating a strong pipeline of new progammes awaiting mass production. Gross margin was 14.6% (4Q12:16%, 3Q13:13.5%).
FY14F core performance to grow. Firstly, high tooling sales would begin to contribute, especially in Casings/Enclosures and Automotive. Notwithstanding weak HDD industry, management is positive on a new baseplate programme. Secondly, margins would sustain or improve, benefiting from continuous consolidation and automation to combat rising labour costs. Our margin assumptions are conservatively kept flat amid volatile market demand. Stronger than expected end market demand would pose margin upsides.
Forecast maintained, upgrade to HOLD. TP raised to S$0.48 on earnings rollover to FY14 PE. Customer sentiment has improved but growth finally depends on end demand, which at the moment, remains short term. Hence, we recommend Hold for its 6-7% dividend yield while waiting for more growth conviction to emerge.
Publish date: 26/08/13