Positive momentum likely to continue into 2QFY18 (Jun), and the possibility of an interim dividend. Avi-Tech Electronics’ (Avi-Tech) revenue increased 31.3% YoY to SGD11.1m in 1QFY18, driven by 61% and 14% YoY growth at its manufacturing & PCBA services and burn-in services divisions respectively. GPM shrank to 26.41% in 1QFY18, from 29.54% in 1QFY17. The decrease was mainly due to the higher revenue contributed by the manufacturing & PCBA services unit, which yields a lower GPM.
Going forward, we expect the positive momentum to continue into 2QFY18, with stronger NPAT growth due to continued strong demand from its customers for its services, as well as sustained strength in the semiconductor industry. We also expect Avi-Tech to continue rewarding shareholders with an interim dividend, as a result of its strong performance.
War chest of over SGD32.4m for M&As. With a SGD32.4m war chest at its disposal, management is looking at yield-accretive acquisitions and new avenues of growth that would fit synergistically with the company’s existing service offerings. We believe it has likely learnt from past lessons, and would utilise its cash more efficiently going forward. With a yield-accretive acquisition, Avi-Tech would be able to enhance NPAT drastically, with a combination of debt and cash financing, in our view.
Strong insider buying by CEO. Avi-Tech’s CEO and majority shareholder, Mr Lim Eng Hong has bought shares in the open market over several occasions in 2017, with the latest done on 20 Dec 2017 at SGD0.456/share. In total, Mr Lim has bought c.1.33m shares at an average of SGD0.415/share. We think this is a positive testament to Avi-Tech’s strong fundamentals and positive outlook.
Key risks include a slowdown in the economy. (Read Report)
Source : RHB Research