SINGAPORE (Nov 10): DBS continues to like Sunningdale Tech for its advanced manufacturing capabilities, global manufacturing footprint and scale, even as the group’s recent headline numbers for 3Q17 missed expectations on foreign exchange (forex) losses.
See: Sunningdale's 3Q earnings fall 24.2% to $7.7 mil on forex losses, higher expenses
The research house continues to rate it at “buy” with an unchanged target price of $2.70, based on a global average of 13 times FY18F P/E.
In a Thursday report, lead analyst Carmen Tay notes that the group’s latest set of financial results suggest that sales momentum has remained strong on an upward trajectory.
Particiularly, Mould Fabrication posted the strongest growth to imply positive implications for the group, in Tay’s view – as historical trends suggest the possibility of converting to commercial contracts for Sunningdale going forward.
“While we have lowered FY17F earnings by c.9% after imputing forex losses, we remain cautiously optimistic of the group’s FY18F outlook given positive underlying trends and recent contract wins,” says the analyst.
“Sunningdale has delivered consistent margin improvements and growth over the last few years. Ahead, several underlying trends such as the broad-based substitution from metallic to plastic components in a wide range of industrial applications – particularly in the automotive, consumer goods and healthcare sectors, and favourable demand outlook across the group’s three key end-sectors, indicate longer-term potential.”
Considering how the group is in the midst of growing its capacity, ramping up production and strengthening its business development efforts to ride these trends, Tay has projected for core earnings to grow at an 11% CAGR over FY16-18F.
Future mergers and acquisitions (M&A) are likely to include precision plastic players, while the group’s strong balance sheet and inexpensive valuations at about 1 times P/BV and 10 times FY18F P?E could lead to a potential takeover offer, she adds.
As at 10.54am, shares in Sunningdale are trading 6 cents lower at $2.09, or 1.02 times FY18 book value.
