Singapore Company Focus
Amtek Engineering
Refer to important disclosures at the end of this report
Bloomberg: AMTK SP | Reuters: AMTK.SI
DBS Group Research . Equity
13 Feb 2015
BUY S$0.63 STI : 3,419.17
Higher margins drive profitability
Price Target : 12-Month S$ 0.85 (Prev S$ 0.74)
Reason for Report : 2Q15 results, raising earnings/TP
Potential Catalyst: strong quarterly results
DBS vs Consensus: In line

2Q15 net profit of US$11.3m (+74% y-o-y, +180% qo-q) beat our estimate of US$9m

Better than expected performance in automotive
and telecommunications segments

Higher margins are likely to be sustained with
better product mix while revenue momentum is
intact going into 2H15.

Maintain BUY, TP raised to S$0.85
Analyst
Sachin MITTAL +65 6682 3699
[email protected]
First full quarter since Interplex consolidation. 2Q15
revenue grew to US$263m (+60 y-o-y, + 17% q-o-q)
primarily due to consolidation of Interplex. 1Q15 had
recognised only 2 months of revenue from Interplex and
1Q15 earnings were also affected by one-off integration cost
of US$4.7m. In addition, better than expected performances
from automotive and telecommunication segments also
helped Amtek beat our expectations. This offset weaker
performance from several other segments.
Price Relative
S$
Relative Index
1.4
211
1.3
191
1.2
171
1.1
1.0
151
0.9
131
0.8
111
0.7
91
0.6
71
51
0.5
0.4
Feb-11
Feb-12
Feb-13
Amtek Engineering (LHS)
Forecasts and Valuation
FY Jun (US$ m)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
EPS (S cts)
EPS Pre Ex. (S cts)
EPS Gth (%)
EPS Gth Pre Ex (%)
Diluted EPS (S cts)
Net DPS (S cts)
BV Per Share (S cts)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
Earnings Rev (%):
Consensus EPS (S cts):
Other Broker Recs:
2013A
626
61
34
27
27
6.7
6.7
(20)
(20)
6.7
3.6
40.4
9.4
9.4
8.5
5.0
5.7
1.5
0.2
17.1
Feb-14
31
Feb-15
Relative STI INDEX (RHS)
2014A
633
51
23
18
18
4.3
4.3
(35)
(35)
4.3
3.9
41.4
14.4
14.4
4.7
5.7
6.2
1.5
0.2
10.6
2015F
985
104
45
31
31
7.6
7.6
76
76
7.6
3.8
45.2
8.2
8.2
8.6
4.5
6.1
1.4
1.1
17.6
2016F
1,006
106
49
35
35
8.6
8.6
13
13
8.6
4.3
49.5
7.3
7.3
3.6
4.2
6.9
1.3
0.9
18.2
B: 2
15
9.1
S: 0
8
10.6
H: 1
ICB Industry : Industrials
ICB Sector: Industrial Engineering
Principal Business: High precision metal/plastic components: from
tooling, stamping to cold forging and mechanical assembly.
Source of all data: Company, DBS Bank, Bloomberg Finance L.P
www.dbsvickers.com
ed: JS / sa: AS
Automotive segment, cost savings likely to drive
margins. Higher contribution from high margin segments
such as the Automotive has improved Amtek’s bottom-line.
In addition, Amtek is yet to fully exploit opportunities to
cross sell products after the acquisition of Interplex. Interplex
has relationships with original equipment manufacturers
(OEMs) including brands like Continental, Denso in
Automotive and Apple in mobile devices. This could spur
growth particularly in the automotive segment. Furthermore,
there is room for cost savings which could boost margins
over next 2-3 years.
FY15F/16F earnings raised 15%/8% on improved
margin assumptions. Our FY15F earnings are still
conservative as we assume seasonal slowdown in 3Q15 and
4Q15 which may not be the case this time. Our target price
is raised to S$0.85 pegged at 11x FY15F EPS, similar to its 4year historical average but still at ~15% discount to peers.
The stock also offers 6% yield as an added bonus.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (S$m/US$m)
Major Shareholders
Standard Chartered (%)
Metcom Group (%)
Free Float (%)
Avg. Daily Vol.(‘000)
546
341 / 251
29.9
28.2
41.9
205
Company Focus
Amtek Engineering
INVESTMENT THESIS
Profile
Amtek is a precision engineering service provider. Its main
segments include automotive, networking and enterprise
servers, industrial products, mass storage and
telecommunications segments.
Rationale
Automotive segment to see steady growth
 Key automotive markets such as the US are expected to
see steady growth with better consumer spending and
low fuel prices. Furthermore, the automotive products
have longer life cycles which should contribute to stable
performance in the segment.
Cross-selling and cost cutting opportunities
 Interplex’s relationship with leading OEMs in segments
such as automotive and telecommunication offers cross
selling opportunities that Amtek could exploit. Interplex
operates from too many factories which may also be
consolidated in the medium term
Valuation
Target price of S$ 0.85 is pegged at 11x FY15E EPS, similar
to its 4-year historical average but at 15% discount to peers
average of 13x.
Risks
Slower than expected growth in key markets
 Slower growth in key markets such as US and China could drag down Amtek’s profitability. Increase in wage rates
 Main operating countries such as China are seeing escalating wage costs which could affect margins Source: DBS Bank
Automotive contributed 24%of group revenue in 1H15
versus 13% in 1H14
Gross margin has risen sharply since 3Q14
Source: Company
Source: Company
Page 2
Company Focus
Amtek Engineering
Key Assumptions
FY Jun
Gross margin (%)
SGA as % of sales
Effective Tax Rate (%)
Segmental Breakdown
FY Jun
Revenues (US$ m)
Casings & Enclosures
Mass Storage
Consumer Electronics
Automotive
Others
Total
Income Statement (US$ m)
FY Jun
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
Source: Company, DBS Bank
Page 3
2012A
2013A
2014A
2015F
2016F
16.4
9.5
18.4
14.8
10.1
18.6
14.8
9.9
22.5
17.4
10.9
31.0
17.5
10.9
28.0
Improving gross margin
due to better product
mix
2012A
2013A
2014A
2015F
2016F
170
103
95
104
202
675
172
81
91
97
185
626
181
76
84
100
192
633
166
72
80
261
406
985
166
68
83
274
415
1,006
2012A
2013A
2014A
2015F
2016F
675
(565)
110
(63)
48
1
2
(6)
0
44
(8)
(2)
0
34
34
72
626
(533)
93
(61)
32
6
1
(5)
0
34
(6)
(1)
0
27
27
61
633
(539)
94
(61)
33
(3)
1
(8)
0
23
(5)
0
0
18
18
51
985
(813)
171
(105)
66
(3)
1
(20)
0
45
(14)
0
0
31
31
104
1,006
(830)
176
(108)
68
(3)
1
(18)
0
49
(14)
0
0
35
35
106
(1.0)
(18.0)
(29.2)
(25.7)
(7.3)
(16.3)
(32.3)
(20.0)
1.1
(15.1)
1.1
(34.7)
55.5
102.4
102.7
75.9
2.1
1.5
2.4
12.8
16.4
7.1
5.0
21.8
6.9
12.6
58.4
7.8
14.8
5.2
4.3
17.1
5.7
8.6
53.6
6.0
14.8
5.2
2.8
10.6
3.3
6.7
88.8
4.1
17.4
6.7
3.1
17.6
4.6
9.6
50.0
3.4
17.5
6.8
3.5
18.2
4.7
9.5
50.0
3.9
Automotive segment
seeing growth
Margins Trend
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
2012A
2013A
Operating Margin %
2014A
2015F
2016F
Net Income Margin %
Consolidation of Interplex is
key driver of growth
Company Focus
Amtek Engineering
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
Balance Sheet (US$ m)
FY Jun
(10.8)
(25.5)
(35.1)
(71.3)
3.4
18.9
25.6
(3.9)
48.4
105.5
138.5
126.3
16.6
20.8
22.7
179.6
15.3
5.1
3.9
12.8
3.7
1.3
14.2
4.5
1.2
17.7
7.2
1.8
17.6
7.6
4.3
2012A
2013A
2014A
2015F
2016F
115
8
9
110
57
146
29
474
113
9
10
93
50
142
55
471
131
9
13
229
48
140
30
600
182
10
113
103
75
224
30
737
167
11
113
131
77
228
30
758
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
69
125
51
59
6
151
12
474
100
111
46
35
5
163
11
471
97
110
47
163
5
167
10
600
147
169
59
163
5
183
10
737
147
172
59
163
5
200
10
758
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)
55
(18)
80.6
83.4
38.5
1.4
1.4
1.0
0.1
0.1
11.0
2.8
89
(42)
84.0
84.3
38.0
1.3
1.3
0.9
0.2
0.3
25.5
2.7
61
(32)
81.3
78.0
34.4
1.2
1.8
1.4
0.2
0.2
14.8
2.3
101
(208)
67.4
65.8
29.1
1.5
1.1
0.9
1.1
1.1
61.1
0.0
104
(180)
82.0
78.7
35.0
1.3
1.2
0.9
0.9
0.9
8.0
0.0
Page 4
30%
20%
100
10%
0%
50
-10%
0
-20%
Revenue
Revenue Growth % (QoQ)
High margin product mix and
absence of exceptional losses
improved 2Q15 bottomline
Asset Breakdown (2014)
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
Source: Company, DBS Bank
40%
150
1Q2015
(2.9)
(14.0)
(22.2)
(13.4)
50%
200
4Q2014
263
(217)
46
(26)
20
0
0
(5)
0
15
(4)
0
11
11
31
3Q2014
226
(186)
40
(24)
16
0
1
(5)
(5)
7
(3)
0
4
9
25
2Q2014
152
(130)
22
(14)
7
0
0
(4)
(1)
3
(1)
0
2
2
12
1Q2014
147
(128)
19
(13)
5
0
0
(2)
(2)
2
(1)
0
2
3
10
4Q2013
165
(139)
25
(16)
8
0
0
0
0
8
(2)
0
6
6
14
60%
250
3Q2013
2Q2015
2Q2013
1Q2015
1Q2013
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
Revenue Trend
4Q2014
4Q2012
Quarterly / Interim Income Statement (US$ m)
FY Jun
2Q2014
3Q2014
Debtors 25.1%
Net Fixed
Assets 23.5%
Assocs'/JVs 1.5%
Inventory 8.7%
Bank, Cash
and Liquid
Assets 41.1%
Company Focus
Amtek Engineering
Cash Flow Statement (US$ m)
FY Jun
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (US cts.)
Free CFPS (US cts.)
Capital Expenditure
2012A
2013A
2014A
2015F
2016F
44
22
(10)
(2)
2
1
57
(14)
0
0
1
1
(13)
(34)
(14)
0
(2)
(50)
(3)
(9)
10.0
7.7
34
21
(7)
(1)
(7)
(10)
30
(34)
0
0
0
(2)
(36)
(16)
6
0
(3)
(12)
2
(17)
6.7
(0.8)
23
20
(4)
(1)
16
(1)
54
(39)
0
0
0
12
(26)
(14)
(26)
0
150
109
(1)
136
6.9
2.7
45
39
(2)
(1)
(52)
0
29
(190)
0
0
0
0
(190)
(15)
50
0
0
35
0
(126)
14.8
(29.2)
49
39
(14)
(1)
(3)
0
70
(25)
0
0
0
0
(25)
(17)
0
0
0
(17)
0
28
13.2
8.2
200
180
160
140
120
100
80
60
40
20
0
2012A
2013A
Target Price & Ratings History
S$
S.No .
0.72
1:
0.67
0.62
1
0.57
0.52
0.47
Feb-14
Jun-14
Oct-14
Feb-15
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
Page 5
2015F
Acquisition of Interplex
Source: Company, DBS Bank
0.77
2014A
Capital Expenditure (-)
Cl o s i n g Ta rg e t
Pri c e
Pri c e
28 Jan 15
0.64
0.74
Da te
R a ti n g
Buy
2016F
Company Focus
Amtek Engineering
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
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1.
DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a
proprietary position in the securities recommended in this report as of 31 Dec 2014.
2.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of
common equity securities of the company mentioned as of 31 Dec 2014.
3.
Compensation for investment banking services:
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12
months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the
Amtek Engineering.
Page 6
Company Focus
Amtek Engineering
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