SINGAPORE (Nov 17): KGI is maintaining its “buy” recommendation on Global Testing Corporation, after the group’s earnings of US$3.2 million ($4.5 million) year to date achieved 78% of KGI’s full year forecasts.

Group revenue fell 9.6% to US$23.4 million for the nine month period to Sept, and achieved 77% of KGI’s full year estimates.

Renfred Tay, KGI’s analyst, noted that the group’s business outlook remains “insipid”, but continues to favour the company for its yield and low stock valuation.

“Strong cash generation is key to our premise of a sustainable run of dividend or capital payouts that could bring outsized yields to investors,” explained Tay adding that a dividend of 13 cents for FY17 and 16.5 cents for FY18 remains “achievable”.

On the other hand, Tay points out that the group needs to maintain a “sustainable level of revenue” to continue to enjoy strong cashflows, particularly as its largest customer continues to be impacted by falling PC shipments. On the other hand, its next four largest customers continue to see healthy growth. The biggest risk would come from the restructuring within semiconductor companies which may impact its supply chain, and the potential policy changes from the new Trump administration.

Furthermore, Tay also noted that the group has spent just US$5 million to US$7 million on capital expenditure in the past 3 years. “A natural concern would be whether enough cash is set aside for capital reinvestment given GTC’s generous cash payouts to shareholders,” he said.

In response to such concerns, GTC’s CEO previously explained that the continuous upgrade of its testers were sufficient to fulfil its customer requirements. “[The CEO] sees this as GTC’s key competitive advantage over its peers, and does not see the need for major capex spending in the next 2‐3 years,” concluded Tay.

Shares in Global Testing are trading 8 cents higher at $1.11 on Thursday.