3QFY14 PATMI dipped 55.4% YoY due to weak end user demand

Amtek reported a mild 0.6% YoY decline in its 3QFY14 revenue to US$146.9m, while PATMI dipped 55.4% to US$1.6m, partly due to non-recurring termination compensations from the relocation of one of its factories from one city to another in China. This was because its landlord refused to renew its lease and there would be no labour cost savings as the new factory will be situated in an area which carries the same minimum wage as before. Of concern is Amtek’s outlook statement which stated that its end-market demand had softened after a positive start in 1HFY14. We believe this reflects the continued vagaries in the macroeconomic environment despite the on-going modest recovery in the developed markets.

New business wins

However, Amtek managed to secure a number of new business wins, notably in the automotive sector. It also recorded strong tooling sales, which doubled YoY, especially within the automotive sector. We believe this may result in future programme launches and hence higher revenue contribution, although the gestation period for automotive products is typically longer at 18-24 months.

Interplex acquisition provides an exciting leg of growth

Amtek is currently in the process of completing its 100% acquisition of Interplex Industries (obtained shareholders’ approval but yet to clear the Ministry of Commerce of the PRC). Management is hopeful that the deal will be completed in early 1QFY15. Approximately 43% of Interplex’s sales are contributed by the automotive sector, but Amtek said there would not be any cannibalisation of business between the two entities, as Interplex focuses on smaller components while Amtek is more well-versed in the manufacturing of larger modules for the automotive sector. One of Amtek’s strategies is to increase its cross-selling capabilities to Interplex’s customers.

Trading at 10.5x FY14F and 8.4x FY15F consensus PER

We do not have a rating on Amtek. But according to Bloomberg, there are currently 2 BUY ratings and 1 HOLD rating on the stock, with an average consensus target price of S$0.56 (based on active coverage over the last 6 months).  

Source: OCBC Research - 12 May 2014