Excerpts from RHB report

Analyst: Jarick Seet

BUY, new DCF-based TP of SGD0.52 from SGD0.50, 24% upside with 6% FY21F (Jun) yield.


Share price:
42 c

52 c

Avi-Tech Electronics’ FY20 PATMI surged 28.5% YoY.

It declared a DPS of 2.5 SG cents (FY19: 2.3 cents), despite being impacted by the COVID-19 pandemic.

Management’s outlook remains cautious, due to uncertainty over demand.

That said, we believe that its margins will continue to increase, on continued growth of the testing segment.

Burn-in testing for automotive component still growing strongly. With the sector slowdown – in effect since 2018 – having bottomed out, its outlook should improve.

limenghong2.17CEO Lim Eng Hong. NextInsight file photoAvi-Tech’s performance should continue to pick up in FY21F, with decent growth from burn-in services, which fetch a much higher GPM.

This, coupled with previously-done cost cuts, should help improve margins as well.

Its GPM improved significantly to 35.7% in FY20, from 31.4% FY19. We expect it to continue booking robust numbers, moving into FY21F

Staying alive with net cash in a critical industry. With a net cash balance sheet and strong operating FCF, management should continue to reward shareholders with attractive dividends, despite the drop in profits over the previous year.

Being in the burn-in and testing segment of the semiconductor industry mainly for the automotive sector, it is also in a crucial part of the supply chain – where demand for its services is still growing, despite the COVID-19 pandemic.

JarickSeet3.18Attractive c.6% yield for FY21F. For FY20, management declared a total DPS of 2.5 SG cents, translating to a PATMI payout ratio of 71.6%.

We expect management to reward shareholders with the same level of dividends or more, going forward – on top of the special dividend given in FY20.

-- Jarick Seet, analyst

M&A opportunities available at such drastic times. Other than its handsome yield, management is actively exploring M&A opportunities and hopes to close a deal in the near future.

Any potential earnings-accretive M&A should be a positive.

With a net cash balance sheet and good dividends, we are positive on the stock.

This is because investors have been well rewarded – if we look at its dividend trends – even when earnings were at the bottom of the cycle

A key downside risk is a slowdown in the economy.

Full report here

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