Amtek Engineering Limited -
STI : 3,177.25
Price Target : 12-Month S$ 0.48
• 1Q14 results in line, formed 26% of FY14F earnings
• New customers and product wins led the recovery while automation helped contain costs
• Management cautiously optimistic; further re-rating dependent on stronger pick up
• Maintain HOLD and S$0.48 TP
Earnings are bottoming out. Amtek reported 1Q14 PATMI of S$7.5m including close to S$1.1m of one-off charges. Without this, core profit would be S$6.4m, flat from 1Q13 but a marked improvement from the S$0.1m loss in 4Q13. Results are in line as 1Q14 earnings formed 26% of our FY14F earnings. Sales and margins continue to improve sequentially.
Revenue grew 4% y-o-y and 5% q-o-q to S$169.6m. Except for Mass Storage and Consumer Elec, all segments continue to grow sequentially, thanks to robust new programme launches which help offset challenging markets. Tooling sales remained strong indicating a healthy new programme pipeline in the future. Gross margins improved further to 16.5% from 16% in 1Q13 and 14.6% in 4Q13.
Stronger balance sheet. Amtek generated S$2m FCF this quarter. Overall balance sheet has improved as net gearing ratio shrank further to 0.17 from 0.21 in 1Q13 and 0.25 in 4Q13.
Early days but FY14 recovery is intact. Amtek will continue to realise the benefits of strong tooling sales in the past quarters as these tools translate into new programmes, especially in Casings/Enclosures and Automotive segments.
Meanwhile, we expect margins to improve or remain steady as Amtek continues to consolidate and automate operations to combat rising labour costs.
Maintain Hold, TP: S$0.48. Management is cautiously optimistic of improved operations, thanks to visibility of new programmes. Management acknowledged that full recognition of new business wins is dependent on healthy end demand, which at the moment, remains short term and may be volatile. Hence, we recommend Hold for its 6-7% dividend yield while waiting for stronger momentum to emerge.