MEMTECH'S 5.7% yield, CSE's price decline overdone

Memtech International: Buoyed by new order growth and ramp-ups

Showcase for the thousands of parts that Memtech produces for the automotive, industrial electronics and consumer electronics industries. NextInsight file photo.Memtech is poised to outpace the market against a neutral industry outlook. As a new player in both the automotive and consumer electronics sector, Memtech’s revenue growth is expected to be propelled by order ramp-ups as well as a widening portfolio of contracts.

With additional topline contributions from both existing and new clients, as well as longer-term improvements in gross margins, we expect Memtech to continue to deliver strong earnings growth going forward. Based on an attractive valuation and an expected dividend yield of 5.7%, we maintain our BUY rating with a fair value of S$0.158 for an expected total return of 25.4%. (Deborah Ong)

CSE Global: Resilient earnings a positive in turbulent times  

At a meeting on 4 Dec, Organization of the Petroleum Exporting Countries (OPEC) failed to agree on reducing oil production but has set aside its quota of 30m/barrels a day until the next meeting in Jun 16. The result on 7 Dec was a 5.8% and 5.3% drop in WTI Crude and Brent prices, settling at their lowest prices in nearly seven years. Having seen large capex cuts by major oil companies, we expect spending to be muted and budgets to see further reduction in an uncertain and depressed oil price market. 

While we acknowledge a slowdown in new greenfield projects, we still think CSE Global Ltd’s (CSE) earnings will likely remain largely resilient given its exposure to recurring brownfield maintenance jobs, which contribute about 50% of its total annual revenue. That said, on weaker outlook, we cut our FY15/16F forecasts by 3.7%/6.7%. Consequently, our FV decreases from S$0.580 to S$0.540 (9x FY16F PER). Supported by a decent FY15F dividend yield of 5.9%, maintain BUY as we think the recent price decline is overdone.  (Eugene Chua, photo)