Initiate coverage with Buy and TP of $1.09. We initiate coverage on
Amtek Engineering with a Buy rating and target price of $1.09, pegged
at 11x FY Jun13F PER. Despite trading at lower valuations than its
EMS and ODM peers, Amtek stands out for its superior ROE and high
dividend yield, as well as the potential for margin expansion. It also has
been a laggard in the recovery from the tech supply chain glut.
A stronger entity post restructuring. The privatisation of Amtek in 2007 ushered in new management members. Its current chief executive officer and chief financial officer both hailed from GES International (now under Venture Corporation). The restructuring exercise prior to its relisting in 2010 has also created a new and stronger Amtek that is armed with extended capabilities and a better business model.
Poised to ride new wave of outsourcing. Amtek is well-positioned to meet the stringent demands of OEMs in the next wave of outsourcing. Increasingly, contract manufacturers have began to engage customers in the early stages of the product and process innovation cycle to win or even to just maintain market share. Amtek’s precision engineering and mechanical manufacturing capabilities, coupled with its ability to provide customised solutions and integrate them with customers’ supply chains, will stand it in good stead to meet those challenges.
Potential margin expansion. A conscious effort to focus on high- margin business segments could translate into opportunities for margin expansion for Amtek. We note also that the services offered by the company tend to be of higher value than the average EMS provider whose focus is on volume. This is clearly evident from the higher margins Amtek commands vis-à-vis its peers.
Earnings nearing a bottom, accumulate for recovery. Amtek’s share price has tumbled to almost half its IPO price of $1.30, buffeted by tech sector supply chain woes and economic uncertainties. Though FY Jun12 will remain a tough year, we believe that earnings are close to bottoming out and expect recovery growth from 4QFYJun12. Accumulate now at attractive valuations with 5.1% dividend yield.
A stronger entity post restructuring. The privatisation of Amtek in 2007 ushered in new management members. Its current chief executive officer and chief financial officer both hailed from GES International (now under Venture Corporation). The restructuring exercise prior to its relisting in 2010 has also created a new and stronger Amtek that is armed with extended capabilities and a better business model.
Poised to ride new wave of outsourcing. Amtek is well-positioned to meet the stringent demands of OEMs in the next wave of outsourcing. Increasingly, contract manufacturers have began to engage customers in the early stages of the product and process innovation cycle to win or even to just maintain market share. Amtek’s precision engineering and mechanical manufacturing capabilities, coupled with its ability to provide customised solutions and integrate them with customers’ supply chains, will stand it in good stead to meet those challenges.
Potential margin expansion. A conscious effort to focus on high- margin business segments could translate into opportunities for margin expansion for Amtek. We note also that the services offered by the company tend to be of higher value than the average EMS provider whose focus is on volume. This is clearly evident from the higher margins Amtek commands vis-à-vis its peers.
Earnings nearing a bottom, accumulate for recovery. Amtek’s share price has tumbled to almost half its IPO price of $1.30, buffeted by tech sector supply chain woes and economic uncertainties. Though FY Jun12 will remain a tough year, we believe that earnings are close to bottoming out and expect recovery growth from 4QFYJun12. Accumulate now at attractive valuations with 5.1% dividend yield.
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