- 3Q14 broadly in line. Seventh consecutive quarter of improvement. Net margins at top of recent 5-6% range.
- Customers generally upbeat, with less industry customer consolidation activities. Catalysts from continued recovery.
- Lower FY14E EPS by 3% for higher tax rate. Maintain BUY & SGD8.88 TP (15x FY15E EPS).
3Q14 net profit rose 3% YoY and 8% QoQ to SGD36.1m, its seventh consecutive quarterly improvement, with net margins of 6% at the top of its recent range. 9M14 YoY profit growth of 8% was not the double digits expected due to a higher tax rate. However, the recovery trend is intact, as 9M14 pretax profit growth of 14% YoY would have been reflected in net profit if not for the higher tax.
Bright spots to persist
Test & Measurement/Medical outperformed, with revenue up 26% YoY. This strength is expected to persist. Agilent’s split into two is expected to jumpstart a new growth phase. A Republican Congress could also generate tax savings for medical-device makers next year. With Microsoft no longer supporting Windows XP, Retail Store Solutions (+1.2% YoY) could receive a boost next year from retailers’ upgrades.
Outlook still positive
Management pointed out that sentiment among its customers is generally positive, with less-frequent customer consolidation concerns. Wage pressure could persist but it has productivity programmes to counter this. It also expects to roll out new programmes for existing and new customers to sustain growth.
Maintain BUY
We lower FY14E profit forecast by 3% but maintain BUY for a continued turnaround this year and projected growth of 15% next year. Dividend yields are also attractive at ~7%. TP is SGD8.88, at 15x FY15E EPS, in line with global peers.
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