SINGAPORE (Jan 10): Research house CIMB says the seven small-cap tech manufacturing stocks under its coverage delivered an average return of 162% in 2017.
The seven stocks under CIMB's coverage are AEM, CEI, UMS, Memtech, Sunningdale Tech, Valuetronics and Jadason Enterprises.
"Our top picks are AEM, Memtech and Sunningdale Tech," says analyst William Tng in a Wednesday report.
AEM is currently the sole supplier of its key customer. AEM forecasts FY17 sales and pretax profit of at least $215.0 million and $32 million, respectively. CIMB has a target price of $4.55.
Memtech continues to see potential in its automotive business given the rise of opportunities with domestic auto manufacturers in China. The research house has a target of $1.33.
Sunningdale Tech has finally seen the results of its cost reduction initiatives. The 9M17 gross margin rose to 15.0%. CIMB believes margins will continue to improve, leading to a hike in the house's profit forecasts. Target price is $2.79.
As at 11.17am, shares in AEM are trading at $3.26, $1.12 and $1.93 respectively.
Meanwhile, CIMB has identified five non-rated stocks with 2017 returns below the stocks under its coverage but are in net cash position based on latest publicly-announced results.
The non-rated stocks are Avi-Tech (+69.6%); Broadway (-34.2%); Fu Yu (+0.5%); InnoTek (+30.9%) and MIT (+46.6%).
Avi-Tech offers burn-in and engineering services for customers in the semiconductor, electronics and life science industries.
Its production/testing facilities are based in Singapore and its in-house burn-in test design capability helps reduce its capex needs.
Autonomous driving and Internet of Things are seen as potential growth drivers by management.
Avi-Tech had a net cash balance sheet at end-Sep 2017. Dividend payout policy is 30%.
The stock is trading at 11.9 times FY16/17 earnings versus regional peers’ average of 16.5 times.
See: Avi-Tech to ride on autonomous vehicles, Internet of Things for earnings growth
Broadway is a key manufacturer of actuator arms and related assembled parts for hard disk drives.
In FY16, Broadway disposed two of its three main businesses, namely, its foam plastics solutions and flow control devices businesses.
In its FY16 annual report, Broadway says it will continue to explore new opportunities to further unlock shareholder value.
See: What's next for this company after disposing of 2/3 of its main businesses?
Fu Yu is an established plastic injection moulding company.
Key industries served include printing and imaging, networking and communications, consumer, medical, automotive and power tools.
The company has a net cash balance sheet at end Sept and dividend payout policy of at least 50% of net profit.
See: Fu Yu Corp is attractive compared to peers, but not without risks
InnoTek is a precision metal components manufacturer serving the consumer electronics, office automation and automotive industries.
Its stamped components are used in printers and copiers, TVs and cars.
Its end-customers include Sony, Canon, Ricoh, Continental, Imasen, Kiekert, Kyocera, Konka, Innolux and Wistron.
Restructuring efforts over the past few years and a change in management has led to return to positive net profit since 2Q16.
See: Restructuring efforts for this tech manufacturer coming to fruition
Manufacturing Integration Technology (MIT) is a capital goods supplier serving the semiconductor industry.
Management believes that the company will benefit from the strong outlook for the global semiconductor industry.
MIT has been announcing new order wins in the past 12 months. MIT had a net cash balance sheet at end June and has adopted a 25% dividend payout policy.
See: CIMB likes Manufacturing Integration Tech for new order wins, strong balance sheet
