DBS Vickers is bullish on some tech stocks. Excerpts from its latest report: then enable Venture to strengthen customer alliances and stickiness in the long haul. Meanwhile, Venture persists to expand its ODM offerings and has embarked on new ODM platforms with strategic customers.
Venture (Buy, TP: S$9.40) remains a champion for solid quality long term growth. Unlike its typical EMS peers, Venture’s focus on the ODM business, which accounts for 35% of FY08 salesfrom 25% in FY07, enables it to post above-industry margins.
Although near term profitability has taken a hit as Venture undertakes full configuration for its key customer, it is not a sign that the company’s focus on margin has gone astray. Rather, full turnkey is the “last mile” solution necessary to complete the total value chain management, which would
We are confident Venture’s relentless pursuit of high value business will eventually drive core net margins to long term target of 6-8%, compared to industry average of 1-3%.
Beyond Q2, new orders from RIM, Apple and HTC in the coming months would boost 2H09 results. We are positive on Hi-P’s medium term prospects, considering a rationalized cost structure and its smartphone exposure.
We have revised TP to S$0.79 as we roll over our valuation peg to 9x PER (vs previous peg of –1SD valuation of 7x PER) on blended FY09/10 earnings. Our new target price translates to 22% upside. Maintain Buy.
Recent story: HI-P INT'L: Chairman is still fighting fit at 69
Chartered (Buy, TP: S$3.50) is a good proxy for early tech recovery. We are positive on Chartered Semiconductor in anticipation of positive quarterly results and it is also the cheapest among top three foundries globally. There is also an added M&A bonus for Chartered; it is rumoured that Temasek is considering a takeover bid for its 62% stake from Abu Dhabi.
Meiban (Buy, TP S$0.35) is an undervalued gem @ 0.6x book with 8% yield. Current valuation of 6x FY09 P/E will be lowered to only 3x if ex-cash per share of S$0.12. Operationally, Meiban expects strong restocking bounce in 2Q and further margin expansion.
Thanks to very early streamlining and careful cost management since mid 08, the company’s bottomline is less affected during this downturn. This is evident in 1Q09 results where net profit shrank 18% even though revenue collapsed 40% from a year ago. Our TP of S$0.35 is pegged to mid cycle valuation of 8x FY09/10 earnings.
Broadway (Not Rated) looks extremely attractive @ > 4x P/E, 0.4x P/B. Broadway is one of the world’s top three supplier of actuator arms for hard disk drives (HDD) and derives more than70% of its revenue from the HDD sector.
Taking cue from the positive outlook of HDD bellwethers Seagate and Western Digital - both of which have indicated stronger than expected HDD demand in Q2 and guiding for further growth into Q3 - we believe Broadway will not only turn in a creditable set of Q2 results but would continue to perform well for the next six months.
Major customer Seagate has turned more optimistic in recent weeks, guiding for 2-6% q-o-q growth in Q2 sales anda further 6-8% sequential growth in Q3. Our channel checks indicated benign inventory level of under 4 weeks.
Just to recap, Broadway recorded net core profit of S$5.2m on sales of S$136m in Q1. Assuming annualized earnings without any seasonal boost, we are looking at potential net profit ofS$21.6m or EPS of S$0.10. At S$0.36, Broadway is valued at only 3.6x FY09 P/E and 0.4x P/B, ranking it the cheapest stocks in the Singapore tech universe. Based on historical average forward P/E of 5x, Broadway can potentially re-rate to S$0.50 share or higher if earnings came in stronger than expected.
Stock also pays DPS of 2cts, translating to 5.5% dividend yield at current price.
Stock Price
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