SINGAPORE (Nov 14): RHB is maintaining its “buy” call on Avi-Tech Electronics with a target price of 59 cents.

This comes after Avi-Tech on Monday announced a 16.6% rise in 1Q18 earnings to $1.71 million, compared to $1.47 million in 1Q17.

Revenue was up 31.1% to $11.1 million from $8.49 million a year ago, mainly contributed by the manufacturing and printed circuit board assembly (PCBA) services business segment, which registered higher revenue of $6.6 million in 1Q18.

The burn-in services and the engineering services business segments continue to register consistent revenue of $2.4 million and $2.1 million respectively for the quarter.

In a Tuesday report, analyst Jarick Seet says: “Its long-term growth prospects are positive, in line with the digitalisation macro-economic trend and increased incorporation of electronics in the automotive sector.”

Hence, the analyst believes that a conservative and stable annual net profit after tax (NPAT) growth rate of 10-15% would be sustainable over the longer term.

Meanwhile, the group has a war chest of more than $32 million for mergers and acquisitions (M&A) at its disposal.

The group is looking at accretive acquisitions and new avenues of growth that would fit synergistically with existing service offerings.  

“We believe it has likely learnt from past lessons and would utilise its cash more efficiently, going forward. With an accretive acquisition, Avi-Tech would be able to enhance NPAT greatly, with a combination of debt and cash financing, in our view,” says Seet.

The analyst believes that the group’s burn-in services segment is well-positioned to benefit from the rising sophistication of vehicles and driverless vehicles, as well as other disruptive technologies in the Internet of Things (IoT) era and the march towards cloud businesses and smart cities.

“With its strong balance sheet and positive cash flow generation, there is a high possibility it could acquire a yield-accretive target in the near term and, possibly, trigger a positive re-rating catalyst,” says Seet.  

As at 9.57am, shares in Avi-Tech are trading 2.5 cents lower, or down 4.8%, at 50 cents. This implies an estimated price-to-earnings ratio of 12.0 times and a dividend yield of 4.2% in FY18.