Excerpts from CGS-CIMB report
Analyst: William Tng, CFA
|Cost controls to tide over 2H20F
■ 1H20 core net profit was above expectations as we were expecting a possible net loss.
■ Reiterate Hold as Sunningdale has executed well in reducing operating costs. Dividend yields are also supportive at 5.7% for FY20F.
Averted a loss in 2Q20
1H20 revenue fell 14.7% yoy to S$275.1m as all business segments registered revenue declines, except for the healthcare segment which enjoyed yoy revenue growth of 17.9%.
1H20 revenue at 48% of our and consensus’ forecasts was within expectations.
The group’s 1H20 revenue decline was due to the global slowdown in the automotive markets and mandatory government closures of the group’s factories due to the Covid-19 outbreak.
The healthcare segment, which accounted for 12.6% of 1H20 revenue, saw more orders from new and existing customers.
1H20 net profit of S$8.3m and core net profit of S$1.9m were better than expected, as both our and consensus forecasts were for full-year losses.
Exceptional income of S$6.3m was mainly due to government grants, exemptions and fee reductions announced to mitigate the impact of Covid-19.
The positive core net profit in 1H20 was due to various measures to reduce operating costs and increase productivity.
Interim DPS (1H20: 1.8 Scts; 1H19: 3.0 scts) was reduced by 40% yoy to conserve cash.
1H20 operating cash flow was S$45.7m and as at end-Jun 2020, the net cash balance was S$31.3m.
2H20F outlook still challenging.
The 2H20F outlook remains challenging, with headwinds in the form of pricing pressure and negative market sentiment due to continuing US-China tensions.
In addition, the Covid-19 pandemic continues to cause considerable uncertainty for the group’s ongoing operations.
|"The consumer/IT segment is seeing a gradual recovery. The healthcare segment continues to be a bright spot, with new projects secured from new and existing customers."
-- William Tng, CFA
The automotive segment is expected to experience a longer road to recovery, as orders for existing projects are low due to the impact of Covid-19 across the US and Europe.
Sunningdale said it will remain focused on cost controls and productivity improvements to tide over 2H20F.
While the outlook remains challenging, Sunningdale has executed well in reducing costs and we reflect these cost improvements in our FY20-22F forecasts, leading to 7-484% increases in our FY20-22F EPS.
Our TP increases to S$1.16, now based on 0.6x P/BV multiple (13-year average) versus 0.5x earlier as the risk of a net loss in FY20F is now lower.
Key upside risk is faster-than-expected recovery in customer demand, while key downside risk remains poor demand due to the Covid-19 outbreak.
Full report here.