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NRA Capital Pte Ltd

Written by: Jacky Lee

Friday 14 Feb 2014

Amtek Engineering – 2Q14 results review

The best is yet to come

Amtek Engineering reported a 5% yoy growth in revenue to US$334.2m for the half year ended 31 December 2013

Singapore, 13 February 2014 – Amtek Engineering reported a 5% yoy growth in revenue to US$334.2m for the half year ended 31 December 2013. Profit after taxation grew 15% yoy from US$12.4m to US$14.3m. The Group generated cash from operations of US$44.2m in 1HFY14, reducing net debt from US$42.2m as of 30 June 2013 to US$29.1 million as of 31 December 2013. An interim dividend of 1.3 Singapore cents per share was declared.

Key notes takeaway from 1H14 results briefing:

  • Revenue from the Networking and Enterprise Server Enclosures grew 11% to US$96.7m in 1HFY14, due to new programmes launched for various customers in both the enterprise server and the networking and router industry sectors. Management expects this segment to continue to be a driver.
  • An 8% growth in revenue from the Automotive products sector to US$50.9m. Management expects this sector to provide stable revenue growth till 2018 due to higher end market demand and sales contribution from newly launched programmes for customers in China and Europe. It has 20 tier one customers now.
  • A 4% decline in the Mass Storage product sector revenue to US$40.4m, hard disk drive customers have been suffering over the last two years. However management expects this sector has bottomed with the launch of the 5mm base plate.
  • Suzhou and Shanghai utilisation rate achieved 75-80%, Czech Republic was close to 100% due to high demand for Automotive tooling, the rest was about 50% utilisation rate. Malaysia and Indonesia expected to ramp up this year.
  • Since initiating its automation programme two years ago, the group has reduced about 20% headcount and expects to reduce another 800 employees by end of the year after its phase 2 automation programme completes.
  • Capex expected to be moderate given the robot arm is not capex intensive, and current capacity is enough to handle the increasing demand from new products and new customers.  

Valuation:

Amtek’s earnings declined in FY06/2012 and FY06/2013. However, we believe Amtek is now better positioned given its automation programme is gaining traction. The increase in revenue for 1H14 was largely driven from tooling as it is sold close to its cost, therefore the margins didn’t improve accordingly.

We believe there is still room for margins to improve after production starts ramping up. At S$0.52, Amtek trades at 7.9x FY06/14E annualised PER and 1.24x PBR. With 6.4% yield expectation, we believe the stock valuation is not expensive at current level.

 


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