SINGAPORE (May 9): UOB KayHian and CGS-CIMB Securities have “hold” calls on Sunningdale Tech, the manufacturer of precision plastic components.
Sunningdale’s 1Q19 earnings missed UOB’s expectations with core net profit declining 70% from a year ago.
Revenue fell 5.6% y-o-y, due to a 15% y-o-y decline in the automotive segment, while the other segments remained stable.
UOB analyst John Cheong says Sunningdale’s new plants continue to affect operations.
At its new Penang plant, utilisation levels were low as the plant is still in its initial startup phase.
However, Sunningdale expects production and utilisation at this facility to ramp up in 2H19 from new projects secured.
Secondly, the shifting of operations and machinery to a new site in Chuzhou is still ongoing although the shift is expected to be completed in 3Q19.
Nevertheless, Sunningdale expects a better 2H19 compared to 1H19 from several new projects secured in the consumer and healthcare segments.
These include liquid syringes, infant-related products and liquid silicone products. In addition, the new Chuzhou plant is expected to generate additional cost savings.
“Maintain ‘hold’ with a lower target price of $1.22,” says UOB which has a lower target price of $1.22, pegged to peers’ average 2020F PE of 11.0 times.
Entry price for UOB is $1.10.
Meanwhile, CGS-CIMB says 1Q19 net profit of $0.8 million came as a relief as the research house was worried that Sunningdale may incur a loss in the first quarter.
Excluding an FX loss of $0.9 million, Sunningdale disclosed that its adjusted net profit was $2.1 million.
For 1Q19, the revenue decline of 6% y-o-y was mainly due to a 15% decline in sales in the automotive segment (due to weak demand and projects reaching end-of-life).
The combined net losses at the Chuzhou and Penang locations are estimated to be between $1 million and $2 million, said CGS-CIMB.
And although gross profit margin improved in 1Q19 as management tightened cost controls and enhanced operating efficiencies, CGS-CIMB expects gross margin to improve in the subsequent quarters.
“While the demand in the automotive segment remains weak, Sunningdale continues to garner momentum in the consumer/IT and healthcare segments. Cost pressures (wage increase and raw material costs) are also easing,” says analyst William Tng.
Sunningdale share price decline of 13.5% since its ‘reduce’ call on March 1.
CIMB-CGS is upgrading our call to “hold” from “reduce” previously. Target price remains at $1.38 or 0.69 times book value.
As at 2.26pm, shares in Sunningdale are down 1 cent at $1.31.
