Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

Balance sheet reasonably strong

As at end-Dec 2019, Sunningdale had a negligible net debt position of S$1.0m.

The group’s bankers based on its FY18 Annual Report are Citibank N.A., DBS Bank Ltd, Malayan Banking Berhad, Oversea-Chinese Banking Corporation Limited, Sumitomo Mitsui Banking Corporation, The Hongkong and Shanghai Banking Corporation Limited and United Overseas Bank Limited.

Sunningdale

Share price:
88 c

Target: 
$1.09 

In FY19, the group generated net cash from operations of S$47.5m and capital expenditure was S$34.6m.

Free cash flow for the year was S$12.9m or 6.7 Scts per share.

Interest expense for FY19 was S$5.2m; hence, Sunningdale’s net cash from operations and free cash flow could cover its interest expense by 9.1x/2.5x.

Will Sunningdale cut dividend?

Sunningdale does not have a formal dividend policy.

Dividend cut?

williamtng4.14“Although our base case DPS is 8 Scts for FY20F, we do not rule out a dividend cut as a) it is prudent to conserve cash in the current situation and b) M&A opportunities could arise.”

-- William Tng, CFA

Dividends are declared after considering the level of available cash, capex plans and return on equity and retained earnings.

Over FY15-17, Sunningdale raised dividends as profitability improved.

Given a more challenging FY18-19 (trade war between the US and China and slower economic growth), Sunningdale maintained its DPS at 8 Scts for both FY18 and FY19.


Sunningdale’s free cash flow per share for FY19 was 6.7 Scts while depreciation per share was 16.2 Scts.

Valution and recommendation

Earnings cut by 6.2-9.1%
We cut FY20F sales by 7.3% to account for the production disruptions/demand uncertainty arising from the Covid-19 outbreak.

While our segmental revenue growth forecasts for FY21-22F are unchanged (Figure 6), the lower base in FY20F leads to a negative 7.2% change in revenue forecasts for these two years.

EPS forecasts for FY20F/21F/22F are reduced by 9.1%/8.1%/6.2%.


Upgrade to Add

Given our earnings cut, our FY20F BVPS falls to S$1.92 from S$1.93 previously.

At an unchanged 0.57x P/BV multiple (13-year average), our TP falls slightly to S$1.09.

Upgrade to add as we think the share price decline has priced in some of these negatives.

Key upside risk is faster-than-expected recovery in customer demand while key downside risk is worse-than-expected earnings (or even losses) in 1H20F.

 

Trough valuation

During the GFC, Sunningdale’s share price troughed at S$0.75 in 2009.

The trough P/BV and trough P/E then were 0.445x and 8.2x respectively.

Based on our current forecasts, the possible trough prices for Sunningdale are S$0.85 and S$0.755 respectively.

During the GFC, Sunningdale slipped into a loss of S$97.5m in FY08 due to impairment charges and foreign exchange losses but returned to profitability in FY09.



Full report here


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