SINGAPORE (May 28): UOB KayHian says the correction of Sunningdale Tech is overdone and that the stock is trading at rock-bottom valuations with an attractive yield.
After its 1Q18 results announcement, Sunningdale’s share price has retreated by more than 20%.
At $1.45, the stock is trading at 0.5 times 2018F P/B and 7.1 times 2018F P/E compared with other plastic injection moulders such as Memtech International which is trading at close to 1.1 times 2018F P/B and 11.0 times 2018F P/E respectively.
“Maintain ‘buy’ with a PE-based target price of $2.00 pegged to peers’ average 2018F PE ratio of 11.9 times,” says analyst Nicholas Leow in a Friday report, “Our target price is in line with Sunningdale’s net asset value which stands at $1.98/share as of 1Q18.”
In addition, Leow says Sunningdale has high exposure to the automotive sector while Executive Chairman Koh Boon Hwee has a clear exit strategy.
The company has also consistently rewarded minority shareholders with increasing dividend since 2013 where dividends rose from 3.5 cents/share to 7.0 cents/share in 2017.
“With the potential for asset disposal this year, we do not expect any deviation and are confident of Sunningdale paying a full year dividend of 7.5 cents/share for 2018,” says Leow.
Meanwhile, Sunningdale has restructured a factory in Zhongshan China with the aim of disposing the factory. The factory is a non-core asset and Sunningdale continues to maintain its operations at Zhongshan through its other factory in the prefecture.
Leow understands that the factory is fairly sizeable and with recent industrial land selling for between Rmb600-1,500/sqm ($201.7-$504.3/sqm), Sunningdale should net a decent gain from the disposal of the factory. The factory has been part of the Sunningdale group for a long time as it was believed that the holding company Chi Wo Plastic Moulds was acquired by Sunningdale in 2005.
“The disposal of the factory should act as a catalyst for the stock post the disappointing 1Q18 results,” adds Leow.
With the US dollar appreciating against the Singapore dollar, renminbi and ringgit since March 30 2018, Leow does not rule out the possibility of Sunningdale reporting a forex gain for 2Q18 should the US dollar continue to strengthen or hold at current levels after more than straight consecutive quarters of forex losses -- 1Q17 to 1Q18.
On April 13 2017, Executive Chairman Koh bought almost 13 million Sunningdale shares at about $1.71/share. With the stock trading at about a 19.7% discount to Koh’s last purchase price, Leow believes investors should see significant value at this level.
Meanwhile, management is still confident on 2018 outlook. Apart from foreign exchange volatility, management is still fairly confident on the prospects of the group for the remainder of 2018. The order backlog for the group remains stable with consistent queries from new and existing customers. Construction for the Penang plant has been completed and pilot runs for mass production in the consumer/IT are underway with ramp-up scheduled for 2H18.
