Amtek Engineering

UOBKayhian on 20 Feb 2014
VALUATION

• Maintain BUY and target price of S$0.63. Amtek is trading at 8.2x 2014F PE with an attractive FY14F dividend yield of 6.1%.

FINANCIAL RESULTS

• On track for a recovery year. 1HFY14 revenue rose 5% yoy to US$334.2m, forming 51.8% of our full-year forecast. Excluding one-off items, adjusted profit before tax would have been US$18.3m (+19.3% yoy), which forms 52% of our fullyear forecast. For 2QFY14, revenue rose 6% yoy, with adjusted profit before tax growing 13.5% yoy to US$8.4m.
• Solid balance sheet with good free cash flow generation. Amtek’s balance sheet remained robust with net debt/asset at 6.3%. Strong free cash flow generation of S$0.0421/share also continued to underpin Amtek’s dividend paying ability as it maintained its interim dividend of S$0.013/share (about 42% payout)
• Expanding margins from effective cost control. 2QFY14 margins were stable yoy, as record tooling sales sold strategically at cost negated the positive impacts from higher utilisation rate and flat operating expenses from effective cost control. However, margin improvements were more noticeable on a half year basis, as 1HFY14 gross profit margin and profit after tax margin grew 0.3ppt and 0.4ppt to 15.9% and 4.3% respectively.

Investment Highlights

• 1HFY14 record tooling sales hint of a cautiously optimistic outlook. Amtek continued to see strong tooling sales in 1HFY14, with 2QFY14 recording the highest quarter of tooling sales ever. While future financial performance is still dependent on healthy end-market demand, the strong tooling sales hint of a sustained recovery for Amtek if the global economy continues to improve. With only 30% of the toolingsales sold in the last six months having converted into sales orders, it also impliesroom for more growth through new programme launches from the rest of 70% tooling sales going forward.
• Our view. After eight consecutive quarters of declining yoy operational profitability, expectations on Amtek are low. Underpinned by strong tooling sales in FY13, we like the odds of a sustained recovery in Amtek should the global economy continue to improve. At its current valuation, Amtek is trading at a 20% discount to its regional peers of 10.5x FY14F PE despite better margins, return on equity and higher dividend yield (6.1%)