SINGAPORE (May 16): Avi-Tech Electronics reported 3Q18 earnings fell 58.7% to $0.64 million, compared to $1.55 million in 3Q17.
This brings 9M18 earnings to $4.02 million, 16.4% lower than $4.81 million in 9M17.
Revenue for the quarter was also 28.6% lower at $7.70 million from $10.8 million a year ago, which brought gross profit for 3Q18, 24.3% lower than the previous year.
The decrease in revenue was attributed to lower revenue contribution from the group’s Manufacturing and PCBA Services business segment, which remains to be its main revenue driver.
The group’s Engineering Services business segment also registered lower revenue, largely caused by delays in a production ramp-up from customers as a result of a slowdown in the semiconductor and electronics manufacturing sectors.
As at March 31, the group’s cash and cash equivalents stood at $14.1 million.
Lim Eng Hong, CEO of Avi-Tech says, “With our fundamentals intact, we remain positive of our performance and profitability. Given our strong cash reserve, we are inclined to sharing more profits with shareholders.”
Following the results announcement, RHB is reiterating its “neutral” call on Avi-Tech with a fair value estimate of 43 cents.
In a Wednesday report, analyst Jarick Seet says it was previously highlighted in channel checks that the group’s engineering services customers supplying wafer machines to Taiwan Semiconductor Manufacturing (TSMC), trimmed their full-year revenue target due to softer demand for smartphones and uncertainty over cryptocurrency mining.
Hence, orders for machines and parts are likely to be delayed, which would in turn affect Avi-Tech. As a result, the analyst expects weakness to persist into 4Q18 as well.
On the other hand, the group mainly provides burn-in, PCBA and manufacturing services for chipmakers in the automotive sector, which has seen gradual and steady growth.
“We expect the burn-in segment to continue to grow at 10-15% pa, and not be impacted by the slowdown in the semiconductor sector,” says Seet.
In the past, the group has been known to reward its shareholders with attractive dividends.
“We think that management will likely increase the dividend payout ratio to 85% and above, as Avi-Tech is in a net cash position and strong operating free cash flow. The stock has an attractive 5.6% yield for FY18F,” adds Seet.
Meanwhile, the results of expected order delays at the engineering segment would likely impact the group’s earnings negatively into the next quarter. The company also faced the slowdown in the semiconductor space, as did its peers that clearly reflected in their results released recently.
However, the stock is backed by an attractive FY18 dividend yield of 5.6% and the management is actively exploring M&A opportunities. The analyst says that given the group’s war chest of $33 million, any potential earnings accretive M&As would be a positive for shareholders.
As at 11.55am, shares in Avi-Tech are trading 3.5 cents lower at 40 cents or 1.49 times FY18 book.
