Excerpts from analysts' report
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A new day is dawning We expect the company’s turnaround in FY15 to be a re-rating catalyst as well as prompt investors to look at the value in AVIT’s book, which consists of S$23.6m cash and an understated office property booked at depreciated historical cost. AVIT is worth at least S$0.117, conservatively based on 1x trailing P/BV. |
Exit from loss-making imaging business
In 4QFY14, AVIT took the decision to discontinue the imaging and energy efficient product business, which has caused major losses to the group over the past three years since its incorporation.
Management attributes the failure of the business to unexpected market dynamics and delays in product launches.
With the losses from this business segment eventually halted, AVIT will have a good chance to return to profitability.
Improving outlook for burn-in and engineering services
Besides the exit from the loss-making imaging business, management is expecting an improving demand for the group’s burn-in and engineering services, driven by the recovering semiconductor industry and higher demand for electronic components in automotives.
Burn-in services and engineering services segments reported higher revenues of S$1.3m and S$2.5m, respectively, in 1QFY15 – compared to S$1.0m and S$1.0m in 1QFY14. The improvement is expected to extend into the rest of FY15.
Clean book with rich cash and undervalued premise
Avic-Tech's building in Serangoon North Ave 5. Photo: Google MapsAVIT is holding a very clean book with all necessary impairments for the discontinued businesses having been made. As at end-1QFY15, AVIT had S$23.6m cash, forming c.83% of its current market cap, and minimal debt.
It owns an office property with a carrying amount of S$10.7m based on depreciated historical cost. The office property was acquired in 1998 and has 44 years lease left.
There would be a significant gain if AVIT monetises this asset, in view of Singapore’s land price appreciation over the past 16 years.
“Evaluate all options”
According to management, AVIT is proactively seeking new areas of opportunities and will evaluate all options such as M&A, or any structure or business which will benefit shareholders.
Full CIMB report here.
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