Excerpts from CGS-CIMB report
Analysts: Ngoh Yi Sin & William TNG, CFA

Memtech International
Blindsided by trade noises

TMChuang4.18Executive director TM Chuang.
NextInsight file photo.
■ We recently met with MTEC and came away positive on its order pipeline. Current share price weakness offers good entry price level at 7.7x FY19F P/E (5.7x ex cash).

■ We expect higher auto sales to drive yoy and qoq earnings improvement in 2Q18F.

■ 2H18F is seasonally stronger with contribution from new and existing CE customers.

■ Further earnings upside for FY19F could come from stronger ramp-up of new CE projects and greater penetration into electric vehicles.

■ Maintain Add with unchanged EPS and TP of S$1.47 (10x FY19F P/E).


Fundamentals intact, reiterate Add
We recently met with MTEC and were reassured of its project pipeline. Share price came off its 52-week high of S$1.91 on the back of weaker 1Q18 and bruised sector sentiment arising from US-China trade war concerns. Recent equity buyback also reinforced management’s confidence in the company’s prospects.

Maintain Add on the stock with S$1.47 TP (pegged to 10x FY19F P/E, in line with peers’ average), which also offers 5- 6% FY18-20F dividend yield and 3-year EPS CAGR of 13.8%.

NgohYisin3.16Value emerging at current price level
The stock currently trades at 0.9x P/BV and 7.7x FY19F P/E, which is c.20% below the industry average. With S$0.32 net cash/share, it is even cheaper at 5.7x 12M forward P/E.

New customer wins is a key catalyst, while any order delay or cancellation may lead to downside risks. We continue to like MTEC for its business positioning, balance sheet strength, as well as decent valuation and dividend yield.

-- Ngoh Yi Sin (photo) & William Tng, CFA

Auto in driver’s seat for 2Q18F We expect the diverse customer mix to benefit automotive as the main revenue driver for 2Q18F.

Apart from steady contribution from Kostal, both Continental and Magna should see growing sales as they remain in the ramp-up phase of product lifecycle and new products (e.g. sensor covers) are added.

A recovery in Tesla’s production run-rate for Model 3 from Feb slowdown due to planned shutdown (1Q18: 2,000 units/week) could also improve qoq sales.

Tesla accounted for c.5% of MTEC’s 1Q18 overall revenue.

Consumer electronics (CE) to catch up in 2H18
Recall that CE sales dipped by 5% yoy in 1Q18, partly because of resource allocation for a product launch from a leading global CE brand, for which MTEC has completed sizeable tooling works.

Our recent checks with the management indicate that orders are still on track for 3Q18 production. CE sales growth could also stem from extended lifespan of existing Beats’ projects and possible new product parts.

Even better optimism for FY19F
MTEC is currently working on multiple projects across auto and consumer electronics segments that have potential to yield strong volumes in FY19F.

These include handset covers incorporating its liquid silicone rubber (LSR) technology for three upcoming models of the same global CE brand, with an estimated 10% market share.

Production for higher number of components for Nio (prev. 6-7) and shift towards functional plastics for Lynk & Co are in the works, which could pose further upside to our FY19F earnings.

Full report here


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