SINGAPORE (July 19): Precision plastics engineering firm Sunningdale Tech could see FY17 growth driven by its automotive business segment, according to Maybank Kim Eng Research.
The segment accounted for 39% of the group’s revenue in 1Q17.
“Growth in automotive segment is leveraged to global outsourcing trends; shift towards more in-car plastic components; and new product projects,” says Maybank lead analyst Neel Sinha in an “unrated” report on Wednesday.
While new projects and a recovery in global consumption has lifted Sunningdale’s consumer/IT segment from its bottom in 1Q16, the group’s mould fabrication segment continues to decline on the back of structural trends.
Meanwhile, its healthcare segment is currently small – accounting for only 8% of revenue in 1Q17.
However, Sinha notes that Sunningdale has a cautiously optimistic growth outlook despite the pricing and cost pressures faced by the industry.
The analyst believes its competitive advantage stems from its “large and diversified presence”.
Sunningdale’s top 30 customers account for 80% of its revenue, Sinha says.
With precision engineering capabilities built over three decades and tooling expertise that is instrumental in driving levels of automation, Sunningdale is also one of few firms with manufacturing presence outside Asia.
In addition, its diversified product offering mitigates the risk of demand volatility in a specific product.
Sunningdale has the “ability to scale and standardise a product for an MNC customer across regions,” says Sinha.
Shares of Sunningdale are also trading below its peers. It is trading at 10.4x forward P/E, compared to 14.4x for its SGX-listed peer basket. This is also below the 17.2x for the MSCI Singapore Small Caps Index.
In addition, Sinha notes that Sunningdale has be steadily increasing its dividend per share (DPS). Its DPS has doubled from 3 cents in FY12 to 6 cents in FY16, Sinha says.
As at 12.37pm, shares of Sunningdale are trading 8.5 cents higher at $2.05.
