• Sunningdale Tech's 9M20 core net profit was above expectations, at 133%/119% of our and consensus full-year forecasts.
• Sunningdale Tech received a privatisation offer of either S$1.55 in cash or unlisted shares of the holding company of the offeror.
• We expect Sunningdale's share price (S$1.68 on 9 Nov) to fall when trading resumes tomorrow.

Sunningdale Tech's 9M20 Core Net Profit Above Expectations

• Sunningdale Tech (SGX:BHQ)'s 9M20 revenue was better than expected as customer demand increased q-o-q. 9M20 core net profit was a strong beat at 133%/119% of our and consensus full-year expectations. This was mainly due to tight cost control and product mix changes. Gross profit margin in 3Q20 was 14.8% (vs. 12.5% in 3Q19).

Receives a Privatisation Offer

Reiterate HOLD. Target Price Raised to S$1.55

• We think Sunningdale Tech will continue to manage its costs tightly, and hence, the improvement in its gross profit margin could be sustained at this juncture. Our core EPS forecasts over FY20-22F are increased by 88% to 128%, as we raise our previous conservative margin assumptions.
• We rollover to FY21F and increase our P/BV target to 0.77x (1 s.d. above its 13-year average P/BV of 0.57x), leading to a target price of S$1.55, given the resumption of earnings growth. Previously our P/BV target was 0.6x.
• Key upside risk is a faster-than-expected recovery in customer demand, while key downside risk remains poor demand due to the COVID-19 outbreak.
• Sunningdale Tech resumes trading tomorrow, and we expect the Sunningdale's share price to fall towards the offer price of S$1.55.

Source: CGS-CIMB Research - 9 Nov 2020