SINGAPORE (Feb 20): Market watchers believe Avi-Tech Electronics is going places, as the burn-in tester hitches a ride on rising demand for its services on the back of emerging technologies such as autonomous driving.
UOB Kay Hian has initiated coverage on Avi-Tech with a “buy” recommendation and a target price of 57 cents, representing a potential upside of over 36% from its closing price of 42 cents on Feb 19.
Clement Ho, an analyst at UOB, notes that Avi-Tech has been a beneficiary of the structural growth of automotive electronic components.
“This is due to the increased adoption of safety-related vehicular electronics systems, as well as stronger penetration rates of electric and hybrid autos and the large market potential for autonomous vehicles, which require almost twice the semiconductor content of conventional cars,” he says in an initiation report on Feb 20.
The way Ho sees it, the rise of these emerging technologies will also drive growth in semiconductor capex spend into the next decade.
This, he says, allows Avi-Tech to maintain its steady earnings growth and sustainable yield.
“We estimate an earnings per share (EPS) compound annual growth rate (CAGR) of 23% for Avi-Tech Electronics over the next three years,” Ho says. “An estimated dividend per share (DPS) of $0.025 is sustainable, which accounts for 49-69% of FY2020F-FY2022F core net profit.”
Ho is not the only analyst that has high hopes for the company.
Over at RHB Group Research, analyst Jarick Seet points out that Avi-Tech is expected to storm to a turnaround in earnings, following a strong 2QFY2020.
In the latest quarter, the group saw its PATMI surge 46.7% to $1.4 million.
“The semiconductor sector’s slowdown has likely bottomed out for the company, and its quarterly performance should improve ahead,” Seet says in a Feb 17 report. “FY2020 ought to be a much better year, with earnings having likely bottomed in FY2019.”
RHB is keeping its “buy” call on Avi-Tech, and raising its target price by 13.6% to 50 cents.
“Other than its handsome yield, management is actively exploring M&A opportunities and hopes to close a deal by end 1HFY2020. Any potential earnings-accretive M&A should be a positive,” Seet adds. “With a net cash balance sheet and good dividends, we are positive on the stock.”
According to UOB’s Ho, Avi-Tech trades at 3.4 times FY2021E EV/EBITDA and 9.3 times forward PE, with an attractive yield at 6%.
As at 4.29pm, shares in Avi-Tech are trading 2 cents higher, or up 4.8%, at 44 cents.
