Excerpts from CGS-CIMB report

Analyst: NGOH Yi Sin

3Q18 core net profit of US$2.9m was a miss due to weaker margins.

Memtech

Share price:
$0.75

Target: 
$1.10

■ Barring any major delays, we project 10% topline growth and stronger margins to drive our 17-19% EPS growth p.a. over FY19-20F.

■ Maintain Add with 6-8% dividend yield; we think the recent correction has priced in near-term weakness at 6.2x FY19F P/E and 0.6x FY18F P/BV.

Still a proxy for growing EV and acoustic popularity
Barring any major delays, we remain optimistic on MTEC’s penetration into the acoustic and electric vehicle (EV) segments, with customers like Bose, Nio, Lynk & Co and BYD.

TMChuang2.18aTM Chuang, executive director of Memtech. NextInsight file photo.Management expects one of its key customers (Beats) to refresh and transition to newer models in FY19F.

Apart from possible new order wins, we also see potential growth from its existing auto customers as most of the products continue to be in the ramp-up phase of the lifecycle.

Near-term earnings weakness priced in; maintain Add
As we lower our sales growth and margin assumptions, our FY18-20F EPS falls by 16.6- 17.6%.

Our target price falls to S$1.10 even as we roll over our valuation to end-FY19F, now based on a lower P/E multiple of 8x (prev. 10x), which is at a 15% discount to sector average.

Maintain Add as we anticipate an earnings recovery in FY19F, and believe its near-term weakness is already priced in at 6.2x FY19F P/E and 0.6x FY18F P/BV, post the 60% share price correction since its peak.

Key catalysts and risks
MTEC remains in a net cash position of US$0.18/shr (c.23% of its current market cap), and offers 6-8% FY18-20F dividend yield.

Downside risks to our Add call are order delays/cancellation and escalating trade woes. New project wins and synergistic M&As are potential re-rating catalysts.

Full report here.


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