Amtek

Kim Eng on 14 May 2012

Maintain BUY on higher TP. 3Q12 results came in above expectations despite seasonal weakness. We have raised our full year forecast and target price to SGD1.11 (based on 11x FY13 EPS). Amtek is attractive for its improving outlook with 30+% earnings rebound expected in FYJun13, sub-sector valuations of 6x earnings and attractive dividend yield of almost 7%.

Above expectations. 3Q12 net profit fell 21% YoY to USD7.8m on seasonal weakness. 9M12 net profit of USD24.9m (-30% YoY) comprised 79% of full year forecast, which we have raised by 4%. Also, we believe FY13/14 forecasts are now biased on the upside, even after considering rising wage pressures. Also above expectations was the interim DPS of SGD0.023. Although payout was only 40% of 9M12 net profit, management maintained intent to pay least 50% for the full year.

Improved outlook. Despite the ongoing European crisis, we believe prospects are getting better. After five quarters of QoQ decline, we expect to see a turnaround in 4Q12 and an improving trend in future quarters. One key indicator is rising tool & die sales, which rose to 9.2% of revenue in 3Q12, the highest since 1Q10. While this has depressed short term margins, we see this leading to higher revenue and margin improvement over the next few quarters.

Gaining traction. Overall, 65% of the revenue base should be resilient or see improvement. Amtek was optimistic on a key account in Casing & Enclosure (25% of sales ) where it is gaining access to new business segments. Also, Consumer Electronics (15% of sales) is recovering from overstocking and the largest two customers are now increasing shipments again. Also, it is gaining new products and new customers in Automotive and Imaging & Printing (25% of sales).

Maintain BUY on higher TP of SGD1.11. We continue to value Amtek at 11x FY13 EPS, which has been slightly raised, leading to a higher target price of SGD1.11. Currently, Amtek is trading at 6.4x FY13 PER, significantly below Venture’s valuation of 12-13x earnings. Also, we have raised our FY12 DPS to SGD0.042 (55% payout), yielding an attractive 6.6% at the current level.