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Sunningdale Tech delivered a strong business performance in FY17, achieving record revenue of S$724.5 million, but forex loss took some shine off it.
The forex loss for the leading manufacturer of precision plastic components amounted to S$10.6 million, compared to foreign exchange gains of S$9.0 million for FY2016.
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Sunningdale continued to generate strong positive operating cash flows of S$36.3 million for FY2017. It had cash and cash equivalents amounting S$105.3 million.
Here are highlights of the Q&A session with CEO Khoo Boo Hor and CFO Soh Hui Ling at a results briefing last week.
Q: Are you able to guide on the Group’s utilisation levels across the plants?
| Stock price | S$1.93 |
| 52-week range | $1.285 - $2.36 |
| Market cap | S$363 m |
| PE | 8.2 x |
| Dividend yield | 4.4% |
| Price/Book | 1.0 x |
| Source: SGX StockFacts / Company | |
A: It varies from plant to plant but generally, all existing plants are kept busy. For instance, our new plant in Chuzhou, China has sufficient space available and we are continuing to add machines progressively. We are also awaiting certain projects to enter into the mass production phase which will further improve overall utilisation levels.
Q: Can you guide on the expected growth rate going forward?
A: Given the volatility of macroeconomic conditions, we remain cautious. With reference to our historical growth rate, we consistently grew our top-line by 5-7% yearly.
Q: There have been reports of a slowdown in growth within the auto industry. Are you concerned with that and what are your thoughts?
A: There will always be winners and losers during upcycles and downturns. Typically, when the market experiences a slowdown, it levels the playing field for the industry and there will certainly be consolidation. This actually bodes well for us as we can better differentiate ourselves with our competitive advantages.
Q: Why was the performance of the Consumer/IT segment relatively weak in 4Q?
A: A couple of reasons. For instance, there were multiple customers advancing orders scheduled for 4Q2017 to earlier quarters and a decline in average selling price for certain projects due a change in materials used in production.
We are pleased to share that we continue to win new projects in this segment which will progressively go into the ramp-up phase. We also expect other projects that are primarily complex and challenging in nature, to go ramp up, particularly in our Penang plant.
Q: Some companies take on borrowings in USD to mitigate FX impact. Can you give some guidance on your FX exposure, with regard to the Group’s borrowings?
A: Our loans are denominated in a combination of USD and SGD. Most of the FX loss reported are actually on our receivables and payables, which are unrealised. Out of the total S$10.6m FX loss for FY2017, only S$2-3m are realised.
Q: Can you provide some updates on your upcoming Penang plant?
A: We started construction in 2Q2017 and the building would take 6 – 9 months. We are on schedule and expect it to be ready and handed over by the end of this quarter. At present, the building is up and we are already in the midst of adding machines. We have a very tight schedule to ramp-up but we are confident of executing it given our experience and capabilities.
To cite an example, most pilot projects would require anything from 6 – 9 months from product development to market. We are however undertaking some of these pilot projects at our nearby plants so we accelerate the ramp-up to just about 3 months. We have also started hiring the necessary and relevant labour since the end of last year so that we can fill-up the plant once ready.
Q: Despite the expansion in gross margin for FY2017, can you share the reasons for the decline in in 4Q2017?
A: There are various reasons which may contribute to it but in general, it would be more accurate to review our gross margin on a full year basis as it will normalise any variables during the quarters. For instance, recognition for tooling is progressive and can be lumpy, but on a full year basis, we strive to achieve consistent improvement. This has henceforth led to us delivering our 5th consecutive year of gross margin improvement.
Q: Can you guide on business headwinds?
A: Our biggest headwind is probably FX as we will be affected by the fluctuations of key currencies such as the US Dollar, Renminbi and Ringgit.
Q: Do you intend to increase your capabilities in other areas, such as metal and glass?
A: We keep all options open but we have some exposure to metal as we carry out insert molding for some of our projects.
Q: Do higher oil prices affect your raw material prices?
A: In general, it will affect PP plastics but for our Automotive segment which contributes about 47% of our Group’s revenue, we use high grade engineering plastics which are less sensitive to oil price fluctuations.
For those customers of ours that use PP material for production, we have certain contract agreements with our customers. If prices change according to trends, we would agree on the index but will revise prices on a quarterly basis with the customers.
Q: Have you completed the integration of First Engineering, which you acquired few years ago? If so, are you ready for the next acquisition?
The acquisition of First Engineering is well integrated into the Group. For the next acquisition, we are always on the lookout for value- accretive opportunities for the Group and which are able to drive synergies. That are certain criteria to be mindful of, such as price, valuation and whether the target would be complementary to our existing offering and growth strategy.
Tok Chong Yap and James Bywater contributed to this article. For more info on Sunningdale, see the press release.
