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.
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.
Avi-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.
| Attractive 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.