Excerpts from Maybank KE report

Analyst: Gene Lih Lai, CFA

Bracing shutdowns, demand and supply shock

AEM 

Share price: 
$1.60

Target: 
$2.82

Except AEM, we slash earnings of the Singapore Tech universe to factor in factory shutdowns in Malaysia, supply chain disruptions, and demand risks.

Venture 

Share price: 
$13.96

Target: 
$13.90

We downgrade VMS to HOLD, as we expect corporate capex appetite to plunge, while we upgrade Hi-P to HOLD as risks appear priced in.

AEM, UMS and VALUE remain BUYs.

Key risks to our view are if we have underestimated demand softness and/or overestimated dividends despite corporates’ healthy balance sheets and cash flow.


Operational updates

Valuetronics 

Share price: 
51 c

Target: 
82 c

VMS, UMS and AEM’s facilities in Malaysia are closed from 18-Mar to 14- Apr due to a nationwide movement control order (MCO).

While VALUE’s (90% of production in China) workers have mostly returned, some of its suppliers and customers’ factories are shut as their countries are locked down.

Some of VMS, VALUE, and HIP’s customers are turning cautious.

 

For UMS, we believe softness in consumer electronics end-markets may be cushioned by strength from data centre end-markets from the work from home economy.

Net cash

Lai Gene LihHealthy balance sheets to tide through the storm. All companies are in net cash positions, with VALUE and AEM strongest (~80% net cash to equity) and UMS weakest (9%).

"This, coupled with broadly strong FCF generation should underpin our dividend estimates, in our view.

"Overall, customers’ liquidity, gearing and coverage ratios are healthy, and most customers have been good paymasters even throughout the GFC.


-- Gene Lih Lai (photo),
analyst, Maybank KE

AEM has maintained FY20 sales guidance of SGD360- 380m, and hence has the strongest earnings visibility, in our view.

Inside the report, we provide ROEs and estimated earnings CAGRs at various share prices to gauge what the market is currently pricing in.


Where do we see valuation support? While we continue to expect share price volatility, AEM, UMS and VALUE’s valuations appear attractive.

VALUE is trading at 1.1x FY20E ex-cash P/E, near crisis lows.

UMS 

Share price: 
64 c

Target: 
96 c

Despite being in an earnings up-cycle, UMS’ 1.3x FY20E P/B is reminiscent of 2016 and 2019 cyclical downturns.

AEM (3.9x FY20E EV/EBITDA), which we see as a potential M&A candidate appears attractive compared to the 7-8x Cohu acquired Xcerra for.

HI-P 

Share price: 
83 c

Target: 
78 c

VMS and Hi-P are trading at 1.6x/ 1.1x FY20E P/B, while GFC troughs were 0.5-0.6x.

Full report here


Share Prices

Counter NameLastChange
AEM Holdings4.560-0.180
Avarga0.265-0.005
Avi-Tech Electronics0.000-
China Sunsine0.465-
Food Empire0.690-0.010
Fortress Minerals0.405-0.015
Geo Energy Res0.365-0.005
Golden Energy0.295-0.005
GSS Energy0.065-
InnoTek0.685-0.010
ISDN Holdings0.645-0.020
ISOTeam0.115-
IX Biopharma0.193-
Jiutian Chemical0.084-0.001
KSH Holdings0.340-0.005
Leader Env0.065-
Medtecs Intl0.295-0.005
Moya Asia0.063-
Nordic Group0.390-0.010
Oxley Holdings0.185-0.001
REX International0.3300.010
Riverstone0.670-0.010
Sinostar PEC0.290-0.005
Southern Alliance Mining0.680-
Sri Trang Agro1.150-0.010
Straco Corp.0.410-
Sunpower Group0.440-0.010
The Trendlines0.1070.002
Totm Technologies0.178-0.002
UG Healthcare0.265-0.005
Uni-Asia Group0.970-0.015
Wilmar Intl4.200-0.070
Yangzijiang Shipbldg1.290-

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