Excerpts from analyst's report
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From keypads to automotive components. Memtech was once a major keypad solutions provider to many mobile phone makers (80‐90% of revenue at its peak) before the advent of smartphones and touchscreens. Sensing a shift in preference towards touchscreens, Memtech had tried to morph its business and acquired a Korean touchscreen maker.
About two years ago, a decision was undertaken to discontinue this business, which had failed to take off due to keen competition. During the same period, Memtech also managed to carve an entry into the automotive supply chain. By 2014, Memtech’s fortunes had turned around.
Stronger years ahead. Automotive revenue grew by 52% in 2014, with an increase in revenue contribution to 33% from 26% a year ago. Management expects to continue to see good growth and margin expansion from this segment, but also highlighted that revenue growth should also be expected for the industrial and consumer electronics segments as well.
We expect total revenue to grow by 9‐13% over the next three years along with margin expansion. Net profit is expected to grow by 20% in 2015.
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Higher dividends. Memtech had never stopped paying dividends, even when the going got tough. The company was also never shy from paying better dividends when business was good. Its FY14 dividend yield of 4.3% (on 0.6 Sct payout) is attractive. However, we are expecting an even higher payout of 0.9 Scts for FY15, which translates to a yield of 6.4%.
Attractive valuation. Memtech is currently trading at only 9.2x FY15F P/E on 3‐yr CAGR of 24%. It is also trading much cheaper than local peers, such as Innovalues (11.6x), who is also benefiting from the booming automotive supply chain.
In terms of book value, Memtech is trading at only 0.6x FY15F P/B, of which S$0.06 per share is backed by cash. We initiate Memtech with a BUY rating at TP of S$0.17 pegged at 11x FY15F EPS.
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