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Thursday, May 22, 2014

Sam Engineering - FY14 Above Expectation


Period 4Q14/FY14

Actual vs. Expectations Above expectation. The group reported 4Q14 net profit (NP) of RM9.8m (+66% QoQ; +54.2% YoY), bringing its FY14 NP to RM28.3m (+42%) which hit 107% of our full-year estimate. The key positive deviation was mainly the better-than-expected EBIT margin on the back of better operational efficiency as well as lower-than-expected effective tax rate.

Dividends As expected, no dividend was declared for the quarter under review.

Key Result Highlights YoY, despite the lower sales in Equipment Manufacturing (-24%) and Precision Engineering (-30%) segments amidst the dwindling HDD demand and lower sales in industrial format machining, FY14 revenue increased by 18%, underpinned by the new sales recognition in the Aerospace segment following the acquisition of Avitron Private Limited. EBIT grew by 48% with the positive spillover effect from the higher Aerospace revenue, which also gives higher EBIT margin.

QoQ, 4Q14 revenue increased by 4% as the lower revenue in Equipment Manufacturing (-12%) and Precision Engineering segment (-13%) was offset by the higher sales in the Aerospace segment. While top line registered a flat growth, EBIT spiked up 34% due to increased profitability in the Equipment Manufacturing segment as a result of a nonrecurring payment from a customer.

Outlook With lacklustre PC demand that will lead to deferment of capex budget in the HDD industry, we are of the view that the group’s equipment manufacturing and precision engineering segments would remain sub-par in the near-term. Nonetheless, we believe the impact would be mitigated by its resilient aerospace segment.

Change to Forecasts Post results, our earnings estimates for FY15 have been increased by 11% to mainly account for higher EBIT margin of 8% (+0.6ppts) due to the higher revenue mix contribution from the Aerospace segment which gives higher profitability.

Rating Maintain MARKET PERFORM

Valuation Post earnings revision, our target price has been raised to RM3.41 (from RM2.98) based on a 14.5x (representing a +1.0SD level above the 1-year forward PER mean, for its strong parentage in Temasek and sustainable growth from the aerospace segment).

Risks to Our Call Fluctuation in foreign currencies and the cyclical nature of its business segments.

Source: Kenanga

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