As a result, he slashes his forecast of FY2021 earnings by 40% to reflect an expected 20% drop in burn-in revenue and lower margins for this segment. On the other hand, Avi-Tech has a strong enough balance sheet to withstand this temporary setback, and should still be able to pay attractive dividends to shareholders. Despite the drop in profits, the company still declared an interim distribution per share (DPS) of 0.5 cents, and we expect a one cent per share payout at the end of the financial year, as management has always rewarded shareholders with attractive dividends. Seet noted that Avi-Tech has a net cash buffer to do so, despite the decline in profitability, and as such, forecasts 4% yield for FY2021.
SEE: CGS-CIMB maintains ‘add’ rating on Avi-Tech, but cuts EPS due to cautious outlook
In the meantime, he reveals that 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 positive. With a net cash balance sheet and good dividends, he thinks that the company should successfully withstand this short-term setback, and earnings may rebound in 4QFY2021 or FY2022.