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Memtech kept at 'add' on robust fundamentals, sector rally

PC Lee
PC Lee • 2 min read
Memtech kept at 'add' on robust fundamentals, sector rally
SINGAPORE (Nov 13): CIMB says Memtech has had a turbo-charged 3Q17 with core net profit of US$4.2 million ($5.7 million) coming in above its expectations. 9M17 core net profit also formed 81% of the research house's full-year forecast.
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SINGAPORE (Nov 13): CIMB says Memtech has had a turbo-charged 3Q17 with core net profit of US$4.2 million ($5.7 million) coming in above its expectations. 9M17 core net profit also formed 81% of the research house's full-year forecast.

Memtech reported US$46 million in sales in 3Q17, flat y-o-y but up 22.4% q-o-q as 2H is seasonally stronger.


See: Memtech's 3Q earnings up 26.5% to $5.3 mil

"While 9M17 topline was a slight miss against our full-year expectations, its core net profit was a beat when matched against our FY17F numbers, thanks to gross margin expansion, higher operational efficiency and lower-than-expected tax rate," says analyst Ngoh Yi Sin in a Friday report.

Excluding a one-off sale of land assets in 2Q17, its 3Q17 and 9M17 core PATMI surged 32% and 285% y-o-y respectively, successfully closing the chapter on Beats’ delay in 2016, says Nhgoh.

To recap, Memtech's automotive (AU) segment was the main earnings driver in 3Q17, which accounted for 44% of total sales, on the back of higher sales contribution from key customers like Tesla.

Memtech continues to see potential in AU given the rise of opportunities with domestic auto manufacturers in China, while exciting consumer electronics (CE) projects from both new and existing clients like Beats are also underway for FY18-19.

Management attributed the flat 3Q17 revenue disappointment to slower progress in the Tesla production, and more selective takeup of CE projects against the backdrop of tight labour supply in China. However, this was offset by a more favourable product mix and more streamlined operations, which saw gross margins expand to 18.4% in 3Q17.

"We reiterate "Add" on robust company fundamentals and sector rally," says Ngoh who has a target price of $1.33.

The stock is currently trading at $1.13 or 9.4 times FY18 forecast core earnings.

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