Excerpts from RHB Research report

Analyst: Jarick Seet

burnin board2.17Semiconductor chips are loaded onto burn-in boards (above) and subjected to "stress" under high temperatures and electrical voltages to uncover those with a high likelihood of failure. NextInsight photo Avi-Tech enjoyed a strong 4QFY17, with NPAT surging 62% YoY. A special dividend of SGD0.008 was also announced, bringing total FY17 dividend to SGD0.028, representing an attractive yield of 6%.

We came away from the briefing still positive on its long term growth, which would likely come from electric cars and increased electronics in the automotive sector. 


Share price:
47 c

59 c

We also think that there is a high possibility it would likely acquire an accretive target in the near term.

As a result, we roll over our DCF-based TP to a slightly higher SGD0.59 (from SGD0.52, 26% upside), representing a 12x FY18F P/E. Maintain BUY.

Special dividend of SGD0.008 cents announced.
As at 2QFY17 (Jun), management has implemented a dividend payout policy of at least 30% of total profit. This suggests a positive outlook for Avi-Tech Electronics’ (Avi-Tech) as well as returning value to its shareholders.

In fact, the group has a track record of paying out at least 50% of NPAT over the past few years and management said it would likely maintain this ratio going forward.

As a result, a special dividend of SGD0.008 was also announced, bringing total FY17 dividend to SGD0.028, representing an attractive yield of 6%.

limenghong2.17Lim Eng Hong, CEO and founder of Avi-Tech Electronics. NextInsight file photo  Over SGD30m war chest for M&As.
With a >SGD30m war chest at its disposal, management is looking at accretive acquisitions and new avenues of growth that would fit synergistically with the company’s existing service offerings.

We believe it has likely learnt from past lessons and would utilise its cash more efficiently going forward. With an accretive acquisition, Avi-Tech would be able to enhance NPAT drastically, with a combination of debt and cash financing, in our view. Smart cities and technology upgrades to boost demand.

Long-term growth on track
JarickSeet11.14"Going forward, we expect the growth for Avi-Tech for FY18F to be stable, around 10-15% pa. With its strong balance sheet and positive cash flow generation, we think that there is a high possibility it would acquire an accretive target in the near term and possibly, a positive re-rating catalyst. As a result, we remain positive on Avi-Tech and maintain our BUY call with a higher DCF-based SGD0.59 TP implying a 12x FY18F P/E."

-- Jarick Seet (photo)

Avi-Tech’s burn-in services segment is well-positioned to benefit from the rising sophistication of vehicles and, ultimately, the advent of driverless vehicles, in our view. 

With other disruptive technologies in the Internet of Things (IoT) era and march towards cloud businesses and smart cities, we believe another wave of demand for semiconductor burn-in and other related services is coming. This ought to be a further boost to the group.

Positive long-term growth prospects. We believe that Avi-Tech’s long-term growth prospects are positive, in line with the digitalisation macroeconomic trends and increased electronics in the automotive sector.

As a result, we view that a conservative and stable annual NPAT growth rate of 10-15% would be sustainable over the longer term.

Full report here. 

Watch NextInsight video of visit to Avi-Tech's factory in Serangoon North  -->

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