SINGAPORE (Oct 30): CIMB Research is keeping its “add” recommendation on Sunningdale Tech with a 31% higher target price of $2.86 despite expectations that it will continue to face challenging conditions ahead.
“Business conditions remain challenging for Sunningdale given the pricing pressure from customers and rising labour costs,” says CIMB analyst William Tng in a report on Friday. “Volatile exchange rates also impacted profitability,” he adds.
However, Sunningdale is expected to shine through the dark clouds.
In the 2Q ended June, the precision plastic components manufacturer saw its quarterly earnings more double to $8.2 million. And Tng expects even stronger performance from Sunningdale in the second half of FY17.
See: Sunningdale 2Q earnings more than double to $8.2 mil
“We expect Sunningdale to see a stronger 2H17F revenue as production of consumer/IT products is traditionally ramped up in the second half,” Tng says. “The company is also benefitting from mass production runs from projects secured two years ago.”
At the same time, Tng opines that Sunningdale has been building a sustainable business model.
“We believe there is room for Sunningdale to further improve its gross profit margin, possibly to 16% over FY17-19F, as efforts to drive operating efficiency and streamline operations continue,” Tng says.
In 2Q17, the group reported that its gross profit margin improved to 15.6%, from 13.8% a year ago.
“Its new Penang plant, slated for completion in 1Q18, will also contribute to gross margin improvement over time,” Tng adds. “If 16% gross profit margin can be achieved in FY18F, our net profit forecast would be raised by 11.9% to $45.3 million.”
As at 11.20am, shares of Sunningdale Tech are trading 6 cents higher at $2.20, implying an estimated price-to-earnings ratio of 8.99 times and dividend yield of 4.3% in FY18.
