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“Hold. From our calculation, the stock is undervalued. However, total global merchandise trade in 2015 decreased by 13.64% compared to 2014, the first decline since the gradual recovery from the 2009 global financial crisis.This might pose some challenges to the group’s external trades.
ALP STOCK INVESTMENT CLUB
Memtech International (BOL)
(16May2016) close: S$0.64
12-M Target price: S$ 0.72
1.) Sector: Technology (Electronic components)
2.) Core business structure: Memtech International is a Singapore-based company with three manufacturing sites in P.R.China. They specialised in :
- Automotive (precision parts used in ECU, functional parts used in door/seating/ mirror controls and decorative parts used in Key-Fobs, body control & Infotainment systems.)
- Consumer electronic (Contribution from this segment remained relatively stable at around 28% of revenues in both FY14 and FY15.)
- Telecommunications (Keypads, Window-lens, Plastic Housings and Antennas)
- Industrial and Medical (Memtech only ventured into this segment last year, and is primarily engaged in the production of bar code scanners and medical devices)
3.) Segment that generates the highest revenue: Automotive (40%), Consumer electronics (27%), Telecommunications (24%), Industrial and medical (8%). Hence, Automotive generates the highest revenue for the group.
4.) Countries that the business operates: China, America, Europe and Asia.
5.) Challenges: The total global merchandise trade in 2015 decreased by 13.64% compared to 2014, the first decline since the gradual recovery from the 2009 global financial crisis. This might pose some challenges for the group. Cost management is a challenge as net profit margins are inconsistent through the years. ROE is also severely impacted by net margins. However, it is important to take note that the lower net profit in 2015 is due to the absence of “Net gain from liquidation of subsidiary” that took into account last year. Without this one-off gain in 2014, net profit would have increased by 28.6% instead of the 52.2% drop in 2015 as compared to 2014.
6.) Strengths: The group continues to seek new contracts and orders, especially in the automotive and consumer electronic segments.
7.) Significant events: Memtech International has added two car giants to its clientele as it continues to shift its gears towards the car industry. With the inclusion of electric car maker Tesla and car parts producer Faurecia, SGX mainboard-listed Memtech aims to increase the revenue share of the car industry – currently at 40 per cent – to 50 per cent by 2017.
8.) GTI Ranking(last column): 349
10.) Recommendation: Hold. From our calculation, the stock is undervalued. However, total global merchandise trade in 2015 decreased by 13.64% compared to 2014, the first decline since the gradual recovery from the 2009 global financial crisis. This might pose some challenges for the group ahead. We do see some strengths in this company as it is a fundamentally sound company with good growth potential in the automobile industry and a good management team. Given how Memtech is now supplying to the automotive sector whose landscape is not changing as quickly as the mobile communications, the probability of the company producing positive results going forward is quite high. Even though the company does give dividends, we believe it is not mature enough yet to be a dividend play. Investors who have high risk appetite could invest in this company for growth potential.
COMPILED BY: Chu Cehan
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.