SINGAPORE (June 26): CGS-CIMB Securities is reiterating its “add” recommendation on Memtech International with a target price of $1.47.
In a Monday report, analyst Ngoh Yi Sin says, “We recently met with Memtech and were reassured of its project pipeline.”
Recent equity buyback also reinforced the management’s confidence in the company’s prospects.
Due to a weaker 1Q18 and bruised sector sentiment from the US-China trade was concerns, the stock came off its 52-week high of $1.91.
See: Memtech reports 16.3% fall in 1Q earnings to $1.7 mil on lower margins and bigger forex losses
According to the analyst, the current share price weakness offers a good entry price level at 7.7 times FY19 earnings, which is below the industry average of around 20%, with a 5-6% FY18-20 dividend yield and 3-year EPS CAGR of 13.8%.
“We expect the diverse customer mix to benefit automotive as the main revenue driver for 2Q18,” says Ngoh.
Kostal has shown steady contribution, but both Continental and Magna should see growing sales as they remain in the ramp-up phase of product lifecycle and new products, such as sensor covers, are added.
Moreover, the group’s q-o-q sales could see an improvement following a recovery in Tesla’s production run-rate for Model 3 from Feb slowdown due to a planned shutdown. Tesla accounted for about 5% of the group’s 1Q18 total revenue.
In 1Q18, the group’s sales from its consumer electronics (CE) segment dropped 5% y-o-y, partly due to resource allocation for a product launch from a leading global CE brand, for which the group has completed sizeable tooling works.
“Our recent checks with the management indicate that orders are still on track for 3Q18 production. CE sales growth could also stem from extended lifespan of existing Beats’ projects and possible new product parts,” says Ngoh.
The research house is optimistic for the group’s FY19, as it is currently working on multiple projects across auto and consumer electronics segments that have potential to yield strong volumes.
These include handset covers incorporating its liquid silicone rubber (LSR) technology for three upcoming models of the same global CE brand, with an estimated 10% market share.
In addition, the group is working on higher production for Nio components, as well as a shift towards functional plastics for Lynk & Co, which could post further upside for the analyst’s FY19 earnings estimates.
“We continue to like Memtech for its business positioning, balance sheet strength, as well as decent valuation and dividend yield,” says Ngoh.
As at 12.03pm, shares in Memtech are trading 1 cent lower at $1.12.
