Maintain BUY on quality earnings growth
While revenue growth is projected to be fairly modest due to a mixed outlook for its various segments, we expect greater operational efficiencies to lift net margins from 4.5% in FY15 to 6.1% in FY18, driving core net earnings at 14.9% CAGR. At just 5.9x FY16 PE, we rate Interplex Holdings a BUY with 19% upside to TP of $0.83, based on 7x FY16 PE. A decent prospective yield of 5.1% is also on offer.
While revenue growth is projected to be modest…
While single-digit growth is expected for various core segments (automotives, industrial products, etc), uncertainties surround the end-demand for others (mass storage, imaging, etc) – weighing on overall revenue growth.
…Opportunities for cross-selling and cost-cuts should lift margins and boost earnings
As the Group leverages on Interplex Industries' relationship with leading OEMs to exploit cross-selling opportunities and amid consolidation of operations, we expect net margins improvement from c.4.5% in FY15 to c.6.1% in FY18, which could help grow core earnings by c.51.9% from US$40.4m in FY15 to US$61.4m in FY18, along with revenue improvement of c.4.1%.
Maintain BUY, TP of S$0.83. We have lowered our target price to S$0.83, which is pegged at 7x FY16F PE from 11x previously as peers have since de-rated. Similar to the historical average, this implies a 36% discount to larger peers. Against core EPS growth of 14.9% CAGR, we believe our valuation multiple of 7x earnings is reasonable.? Share price should rerate as earnings are delivered.
Key Risks to Our View:
Slowdown in the global economy could pose significant challenges
. Segments such as consumer electronics and automotives are subject to fluctuations in discretionary spending, which puts pressure on profits during slowdowns. (Read Report)
Source : DBS Group Research
Labels: Amtek, Interplex, Technology Sector