SINGAPORE (Apr 9): Precision plastic component manufacturer Sunningdale Tech has seen its share price plummet 30% year-to-date, as the Covid-19 pandemic disrupted global supply chains, shuttered factories, and ground production to a halt.
But while Sunningdale’s bottomline this year is expected to take a hit from the disruptions, CGS-CIMB Research believes the worst could be over for the company.
In China, which accounted for a third of Sunningdale’s FY2019 revenue, analyst William Tng estimates that up to 90% of its workforce is already back to work.
However, production is expected to be affected in Malaysia, where factories are closed due to the Movement Control Order (MCO).
While the Singapore factory is not expected to be affected by month-long circuit breaker measures in the Republic, production maybe continue to be affected as some Malaysian workers may not have crossed over into Singapore before the imposition of Malaysia’s MCO.
“We believe this chain of events will hurt Sunningdale’s FY2020F revenue,” Tng says in an April 8 report. “We cut FY2020F sales by 7.3% to account for the production disruptions and demand uncertainty arising from the Covid-19 outbreak.”
As a result, Sunningdale’s earnings per share (EPS) forecasts for FY2020 FY2022 have been lowered by 6.2% to 9.1%.
“Despite our earnings cuts, we think the share price has priced in some of these negatives,” Tng says.
The brokerage is upgrading Sunningdale to “add”, from “hold” previously, and trimming its target price marginally by 1 cent to $1.09.
Tng notes that Sunningdale had maintained dividend per share at 8 cents for both FY2018 and FY2019, which were “challenging” years amid the US-China trade war and slower economic growth.
However, he points out that Sunningdale does not have a formal dividend policy, which leaves the door open for a dividend cut in FY2020.
“We do not rule out a dividend cut as it is prudent to conserve cash in the current situation and M&A opportunities could arise,” Tng says.
As at 12.50pm, shares in Sunningdale are trading 4 cents higher, or up 4.6%, at 91.5 cents.
