SINGAPORE (May 29): Avi-Tech Electronics could benefit from the rising sophistication of vehicles and the advent of driverless cars, according to RHB Research.

As at FY16, the automotive sector accounted half of the company’s revenue.

And RHB analyst Jarick Seet believes Avi-Tech’s position as the market leader in burn-in solutions for customers that require fail-safe tests puts it in pole position to catch the automotive boom.

“The automotive semiconductor segment in one such segment that requires a fail-safe burn-in test for its products. This means that there is always a need for its solutions,” Seet says.

In addition, Seet says electric and autonomous vehicles are likely to boost the demand of the automotive semiconductor business even more, as these sophisticated cars will have an increase in semiconductor components.

“With other disruptive technologies in the Internet of Things (IoT) era and march towards cloud businesses and smart cities, we believe another wave of demand for semiconductor burn-in and other related services is coming. This ought to be a further boost to the group,” Seet says.

RHB is keeping its “buy” call on Avi-Tech with an unchanged target price of 52 cents.

<hr/>(See: <a href="http://www.theedgemarkets.com.sg/avi-tech-%E2%80%98buy%E2%80%99-ma-and-special-dividend-possibilities" target="_blank">Avi-Tech a ‘buy’ on M&A and special dividend possibilities</a>)<hr/>

As at 2Q17, Avi-Tech has implemented a dividend payout policy of at least 30% of total profit. In fact, the group has a track record of paying out at least 50% of NPAT over the past few years and management said it would likely maintain this ratio going forward.

Armed with a war chest of more than $30 million, Seet says its management is looking at accretive acquisitions and new avenues of growth that would fit synergistically with Avi-Tech’s existing service offerings.

“We believe that Avi-Tech’s long-term growth prospects are positive, in line with the digitalisation macroeconomic trends. As a result, we view that a conservative and stable annual NPAT growth rate of 10% would be sustainable over the longer term,” says Seet.

As at 1.02pm, shares of Avi-Tech are trading half a cent higher at 46.5 cents.

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