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 Analyst: William Tng, CFA (left)
We expect Serial’s revenue and earnings growth momentum to continue due to the expansion of its current product lines, inclusion of contribution from the acquired companies and strong control of operating expenditure, with its cost efficiency programmes.
Management’s targets revenue of US$1.0bn by end-FY14 and net margin of 2-3% in FY15 onwards.
Serial is currently on track to meeting its revenue target, with 1HFY14 sales of US$475m. We expect the revenue momentum to be sustained, supported by the contribution from its various high-growth customers and the addition of new customers.
Net gearing to drop, dividend payout remains constant
Although Serial’s net gearing ratio stood at 1.2x at end-1H14, management’s plans to factor its receivables would provide some relief. We expect Serial’s net gearing, free cash flow (FCF) and cash cycle to improve significantly with the factoring of receivables.
Earnings growth with dividends
We estimate that a fair value for Serial would be 21.3 Scts, based on its 4-year historical average P/E of 8.5x and consensus CY15 EPS of 2.5 Scts (assuming US$1:S$1.25). In our view, 8.5x is a reasonable P/E for Serial as it represents a 9.6% discount to the weighted average CY15 P/E of its global peers (to account for Serial’s smaller size).
In addition, consensus dividend yield estimates of 5-7% in FY15-FY16 are attractive.
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