Amtek Engineering

UOBKayhian on 9 Jan 2014


VALUATION

• Amtek Engineering Ltd (Amtek) is trading at 7.8x FY14F PE and 1.3x P/B.

 INVESTMENT HIGHLIGHTS

• Amtek is a leading end-to-end design and manufacturing solution provider for precision components, casings and enclosures that are used in a wide range of industries like automotives, servers and consumer electronics. The company was delisted from SGX in Aug 07, as it underwent a major restructuring to streamline its operations and expand its product offerings. 
• Expanded service offerings, greater efficiency. Following the restructuring in 2007, Amtek has streamlined its operations and expanded its service offering. Besides metal stamping services, Amtek now offers end-to-end solutions from industrial design to the final assembly of the finished product. The company also expanded its product offerings to integrate plastic and rubber parts into metal components as well as manufacture complex mechanical modules such as cold forging and 3D forming. 
• Key products manufactured by Amtek include casings for servers and networking equipment, components for consumer home appliances like washing machines, as well as seatbelts and door locks in automobiles. Its major customers include MNCs like Dell, Hewlett-Packard and Philips.
• Greater customer loyalty. With more value-adding services and greater involvement in customers’ supply chain, relationships with customers are likely to be more lasting due to mutual reliance. The higher switching costs also tend to result in more ‘sticky’ relationships. As at FY13, 29 of Amtek’s top 30 customers had been with the company for more than 5 years.
• Coming off from a low base. After 8 consecutive quarters of declining yoy operational profitability, Amtek saw a 20% rise in 1QFY14 net profit as sales from most business segments grew from new programme launches. Adjusted profit before tax margins also grew from 4.6% in 1QFY13 to 5.9% in 1QFY14 on higher utilisation rates and effective cost control. 
• Stable dividend payout with an attractive yield. Since its relisting in FY11, Amtek has been paying out at least 50% of its earnings as dividends. Despite a 20% drop in net profit, DPS for FY13 was still S$0.033 (payout: 53.9%), which translates to an attractive yield of 6.8%.