SINGAPORE (May 8): CGS-CIMB has downgraded its call on precision plastic manufacturer Sunningdale Tech from “add” to “hold”, at a revised target price of 91.7 cents. This is down 15.9% or 17.3 cents from its previous $1.09 call, analyst William Thng says in a May 6 note.
He adds that the move follows Sunningdale’s “below expectations” earnings for 1Q20 ended March 31. Excluding the impact of foreign exchange, retrenchment costs and other items, the group’s core net profit was down 86.3% y-o-y to $0.3 million.
At this level, Thng says the earnings are 1.8% below his “previously pared down earnings forecast”.
In the same quarter, revenue fell 8.8% to $145.5 million, following demand from key segments such as automotive, consumer and IT.
All these segments had taken a hit from the Covid-19 containment measures imposed in China as well as the Movement Control Order undertaken in Malaysia. Meanwhile, Sunningdale’s IT segment faced an added challenge from the decision to exit lower-margin businesses, Thng observes.
See: Sunningdale Tech reports 1Q20 earnings of $2.4 million
With this in mind, Thng foresees Sunningdale to have a “challenging quarter” in 2Q20, as its customers have adjusted their forecasts downwards to factor in the current uncertain market conditions. As it is, he sees Sunningdale’s poor 1Q20 performance as a grim preview of the company’s earnings outlook for the year.
“Customers typically provide rolling demand forecasts (not firm commitments which change according to market demand,” he notes, adding that the Covid-19 pandemic has heightened the uncertainty thereby making such predictions harder.
“We now see the risk of FY20F slipping into losses before earnings recover in FY21-22F. While we now forecast a loss of $2.1 million for FY20F, we believe Sunningdale will be monitoring the situation diligently and institute cost reduction measures to address the situation”, Thng says.
Thng believes that a breakthrough for Sunningdale can come with a faster-than-expected recovery in customer demand.
As at 2.05pm shares at Sunningdale were up 1 cent or 1.02% to 99 cents.
