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19 April 2010
RECOM PRICE/TARGET PRICE MKT CAPITALISATION BOARD SECTOR
BUY S$0.20/S$0.30 S$70.1m Mainboard Technology
Avi-Tech Electronics Ltd
Ready for the upturn
Tan Siew Ling (65) 6210-8698 – email@example.com
Initiate with BUY on improving prospects. We initiate coverage of Avi-Tech with a BUY recommendation and target price of S$0.30, offering 50% upside potential. Our target price is based on 1.5x CY10 P/BV, in line with the valuations of semiconductorrelated stocks during the previous semiconductor up cycle. To ride the recovery in semiconductor cycle. Avi-Tech provides services and products to the semiconductor industry. After a difficult FY08 and FY09, we expect its earnings to bottom in FY10 and recover in FY11 on the back of a recovery in the semiconductor industry. The global semiconductor and semiconductor equipment industries are expected to grow 26% and 76% yoy in 2010, respectively. Expanding non-semiconductor business to smoothen earnings. To reduce its heavy dependence on the highly cyclical semiconductor industry, Avi-Tech is hoping to expand its business into the life science industry, harnessing its existing expertise. Undemanding valuations with strong balance sheet and good cash flows. AviTech’s net cash per share of S$0.13 as at end-Dec 09 represents 65% of its current market cap. Ex-cash, Avi-Tech only trades at about 3x CY11 P/E. This compares favourably with other semiconductor-related companies in the region. We believe it will continue to build up its cash hoard despite decent dividend payments given its limited capex spending in the near term, excluding any major M&As. Avi-Tech has been consistently paying dividends consistently since its listing in 2007.
FYE Jun Revenue (S$ m) EBITDA (S$ m) EBITDA margins (%) Pretax profit (S$ m) Net profit (S$ m) EPS (cts) EPS growth (%) P/E (x) Core EPS (cts) Core EPS growth (%) Core P/E (x) Gross DPS (cts) Dividend yield (%) P/NTA (x) ROE (%) Net cash per share (S cents) P/CF (x) EV/EBITDA (x)
Source: Company, CIMB-GK estimates
2008 74.3 16.3 21.9 14.9 11.9 3.4 -42% 5.6 3.4 -42% 5.6 1.5 7.9 1.1 25.3 12.5 4.7 1.2
2009 31.3 7.3 23.2 6.6 5.4 1.6 -54% 12.1 1.6 -54% 12.1 1.0 5.3 1.0 8.5 13.1 9.4 2.7
2010F 27.9 5.0 17.8 5.5 4.7 1.4 -14% 14.0 1.4 -14% 14.0 0.8 3.9 1.0 7.2 13.5 11.0 4.0
2011F 36.9 7.8 21.2 8.4 6.9 2.0 +47% 9.5 2.0 +47% 9.5 0.8 3.9 0.9 10.0 14.2 7.9 2.5
2012F 40.2 8.6 21.5 9.3 7.6 2.2 +11% 8.6 2.2 +11% 8.6 0.8 3.9 0.9 10.4 15.4 7.3 2.3
Market capitalisation & share price info
Market cap 12-mth price range 3-mth avg daily volume # of shares (m) Est. free float (%) Wrts/ICULS o/s (m) Conv. price (S$)
Source: Company, CIMB-GK Research, Bloomberg
S$70.1m S$0.10/S$0.24 S$0.02m 350.4 68 None None
Share price perf. (%) Relative Absolute Major shareholders Eng Hong Lim Gray Michael Grenvi
1M 13.3 17.6
3M 1.8 5.3
12M 14.4 81.8 % held 30.3 0.2
CIMB Research Report
4% to the topline in 2009. (ii) Designing and manufacturing burn-in boards and board-related products. US. quad flat packs. Malaysia. and assembles burn-in boards for various processes such as: Static Burn-In.33 on the main board of the Singapore Exchange on 9 Jul 07. Currently. the PRC. Individual semiconductor devices are stressed at extreme temperatures with voltages and test signals applied to weed out infant mortality failures. and (iii) Engineering services and equipment distribution (29%). which contributed 19. . Taiwan. thin shrink small-outline packages and the latest pin grid arrays and ball grid arrays. The burn-in temperature is also specified by the customer and ranges from -40 degrees Celsius to +150 degrees Celsius. It also offers round-the-clock delivery and collection services. Its principal businesses are: (i) Burn-in and related services (37% of revenue in 1HFY10). Many burn-in systems used in its business are designed and fabricated in-house. Figure 1: Global presence Source: Company Avi-Tech provides services and products to the semiconductor industry. Test During Burn-In (TDBI). It was incorporated in Singapore on 31 Dec 81 and listed at a price of S$0.Background Avi-Tech is a one-stop integrated provider of burn-in services to the semiconductor industry. plastic leaded chip carrier packages. and micro-controllers to automotive control circuits and custom-made chips. It has a market presence in Singapore. manufactures. memories. small-outline IC packages. (i) Burn-in is a process in-between the assembly and final test processes in the semiconductor manufacturing chain. Thailand and the Philippines. Avi-Tech designs. Avi-Tech operates 24/7 on four shifts. High Operating Life Test (HTOL) and Highly Accelerated Temperature/Humidity Stress Test (HAST). The process duration is specified by customers depending on the device types and their specific applications. Any semiconductor device that fails the burn-In screening process will be rejected. (ii) Designing and manufacturing burn-in boards and board-related products (34%). no-leads packages. the Group has over 120 burn-in systems in its in-house facilities supporting different semiconductor device types ranging from microprocessors. Europe. Dynamic Burn-In.
For systems integration (build-to-design). Qualified by its two largest customers. which have a total built up area of approximately 12. parts fabrication. the Group has significantly expanded its engineering services in this area of service. Avi-Tech is able to deploy and perform appropriate value-added engineering work that reduces production. With the ability to integrate its expertise within the Group’s engineering department. Texas Instruments Singapore and National Semiconductor Pte Ltd. as a Burn-In service provider due to its fast turnaround and good engineering support. . PRC.000 sq. Since Feb 06. system assembly to system verification. coupled with technical services like. and the distribution and installation of products from third-party manufacturers. which significantly expanded its engineering services in the area of system integration of High Power Burn-In Systems. innovation and market presence. It is also involved in parts procurement. Avi-Tech also recommends enhancements and improvements to its customers’ designs as a value-added service. Expanded its business in 1995 to include the provision of engineering services to design and build semiconductor BurnIn Systems. parts fabrication. One of its competitive strengths is the provision of systems integration services for refrigeration-based High Power Burn-In Systems. revenue and profit growth as well as management philosophy. the Group reviews its customers’ needs. requests and specifications on equipment requirements. Extended capability to provide Tape and Reel Services to semiconductor manufacturers. Provided Test During Burn-In services to customers. equipment assembly and equipment verification. For equipment manufacturing (design and build). Relocated operations to its current premises located at 19A Serangoon North Avenue 5. manufacturing and/or testing costs for customers. and technical support services). The Group achieves this by analysing customers’ production. Figure 2: Corporate milestones 1981 1984 1986 1990 to 1995 1997 1998 1999 2002 2005 2006 2007 2008 2009 Source: Company Incorporated in Singapore Commenced operations with 23 personnel and three Burn-In Systems with a total area of 782 sq. 1 ranking in recognition of its excellence exhibited in performance indicators as operating profit before tax. it performs full turnkey system integration services ranging from parts procurement. In addition to the engineering services provided above. Awarded the Economic Development Board of Singapore’s Enterprise 50 No.(iii) The engineering services and equipment distribution segment is split between systems integration and equipment manufacturing. a USA company providing system integration. project management. in order to design and build the equipment. Expanded its services to provide distribution of third party Burn-In and test related equipment for use in the semiconductor testing environment. Mainboard listing on the SGX-ST Burn-In facilities in Suzhou. m. network engineering. Formed strategic alliance with Motay Electronics (a USA company that supplies automated Burn-In Systems and other semiconductor testing products for which was acquired by Unisys Corporation. training and after-sales care. Started a new project with Unisys Corporation. fully operational Ventured into the US for Burn-In Boards business Successfully ventured into system integration for the life sciences sector Conferred the prestigious Singapore Quality Award Established subsidiary Avi-Tech Inc in USA to meet the upsurge in demand for Burn-In Board and to explore other opportunities in engineering services. Entered into an agreement with another technology partner in its business of system integration of High Power Burn-In Systems. it can be commissioned by its customers to redesign their existing equipment. m. manufacturing or testing processes and equipment to determine if their operations can be simplified or made more reliable or efficient through re-engineering.
AviTech’s top 10 customers accounted for 77% of its 1HFY10 revenues. Its production facility in Singapore sits on a built-up area of 12.000 sq m. Infineon Technologies.Figure 3: Revenue breakdown by market By region Singapore Philippines 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 Source: Company By segment Malaysia Total Revenue (RHS) 80 70 60 50 40 30 20 10 0 (S $ m ) USA Others 2008 2009 Engineering Svcs and Equipment Distro Burn-in and Related Services Design and Manufacturing of Burn-in Board 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 2008 2009 Production capacity. Figure 4: Customers (not comprehensive) Source: Company . UTAC. Freescale.000 sq m is occupied. originally a sales office. has expanded to include production services. Major customers are local offices of key players in the global semiconductor business such as Dialog Semiconductor GMBH. of which 10. etc. Avi-Tech Suzhou. Competitors.000 sq m. The plant in Suzhou currently occupies 2. Avi-Tech’s wholly-owned subsidiary. Advanced Micro Devices. Panasonic. The Singapore facility has over 120 burn-in systems to support a diverse range of semiconductor device types. Avi-Tech competes with various companies in the different businesses: Business Burn-In and related services Competitor Sunright Ltd Trio-Tech International Pte Ltd Telford Industries Pte Ltd Sunright Ltd Trio-Tech International Pte Ltd Telford Industries Pte Ltd UMS Holdings AEHR Test Systems UMS Holdings Seiko Epson Corporation Tokyo Electron Ltd Manufacture of Burn-In boards Engineering services (System Integration) Engineering services (Equipment Mfg) Equipment Distribution Major customers.
500 in 2009. while that for LCD-TV shipments rose 14% and netbook PC shipments.Industry outlook On a rebound after two years of contraction. In fact. etc.000 7. predicated on: (i) A rebound in the global economy (ii) A recovery in end-user markets. and Chartered Semiconductor and packaging and testing companies. a stunning 90% in 2009. demand for semiconductors continues to grow. on the back of improved economic growth and unexpectedly strong consumer demand for notebook PCs. Following the restocking phase. spurred by low inventories. started restocking. This was despite the first annual 2% yoy decline in worldwide per capita income to US$10. This reflects a fundamental shift in how consumers are prioritising their spending.000 17. and iSuppli predicting double-digit yoy growth of 20-27% for this year.000 Global semi sales (US$m) 22. global revenue from shipments of smart phones rose 9. UMC. portable DVD players. according to iSuppli. Figure 5: Global semiconductor sales 27. as firms.6% in 2009. Demand for semiconductors has picked up steadily following a collapse in late 2008 and early 2009.000 2. and (iii) Fairly lean inventory channels and less capacity added due to a tightening of capex in 2009. LCD TVs. with many market researchers like Dataquest. based on US government data.000 Jan-90 Source: SIA Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Figure 6: Strong yoy recovery since Oct 09 80% 60% 40% 20% 0% Jan-91 -20% -40% -60% Source: SIA Yoy change (%) Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 .000 12. The quick rebound in the semiconductor has led to capex raises by major foundries like TSMC. and we believe the challenging conditions of 2009 are on track to reverse course in 2010. Global semiconductor sales have returned to positive yoy growth since Oct 09 (after 12 consecutive quarters of contraction). IC Insights. smartphones.
etc. Our discussions with several PC-related companies thus far point to a positive start for 2010. market expectations of a double-digit contraction at the beginning of 2009.Figure 7: OECD leading indicator points to a growing economy Source: OECD Figure 8: Good correlation between global GDP and semiconductor sales growth 50.0% -40. CIMB-GK Research .0% 30. Another positive trend was a gradual recovery in the server market in 4Q09. Demand for desktop PCs. PCs and handsets collectively accounted for more than 60% of the usage of semiconductors in 2009. are also projecting 15-20% yoy jumps in PC shipments in 2010 after a muted 2009. Dataquest. remained weak as the market transitioned to mobility. Figure 9: Semiconductor sales breakdown by end-segment 6% 22% 45% Data processing Communications CE Automotiv e 27% Source: SIA.0% -20.0% 0. The main impetus behind the growth was surprisingly strong demand for consumer notebook PCs due to falling prices and a proliferation of ultra-low-cost netbooks. Global PC shipments returned to positive growth in 3Q09 after three consecutive quarters of qoq contraction. Industry researchers like IDC.0% 40. pointing to a high possibility of the resumption of corporate IT spending in 2010 as the global economy continues to recover. driven by continuous demand for consumer PCs as well as a gradual recovery in commercial PCs. and continued to surprise the market on the upside in 4Q09. especially in 2H10.0% -10. with most enjoying good double-digit yoy growth and strong backlog orders from major customers. however. which ended 2009 with marginal 2-3% yoy growth vs.0% 20.0% 10. This helped to lift overall PC shipments into positive territory.0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E Semi sales (y oy chng) Global Economy Grow th Source: OECD PC and handset sales expected to resume healthy double-digit growth.0% -30.
However. Industry research.9% from 2008.5 1. we believe that the days of 20% growth are over as mature markets are saturated and the slack has to be picked up by emerging markets.3 133.4 2011F 128.2 402.9 119.7 272.322.Figure 10: Worldwide PC shipments (m units) 2008 Desktop PCs Portable PCs Total PCs Source: IDC 2009F 126. It also expects larger screens to command a higher share of sales from 2010 as economic conditions improve further. driven by growth in smartphones and low-end devices. Handset shipments surpassed 340m units in 4Q09. even bordering on shortages for a few specific devices. .3 190. We believe many firms have been managing inventories to avoid being saddled with too much inventory.0 1. which catapulted 2530% yoy in 2009.4 2010F 126. According to iSuppli.4m units. including LCD shipments. As a testament to the strong recovery in the semiconductor industry. an earlier expectation of a 3.222.9 360. After cutting bloated inventories in 2009. semiconductor suppliers are expected to maintain fairly lean stockpiles in 1Q10 to maintain profitability.2 195.6 187.8 85.9 81. Some bright spots in consumer electronics.1% yoy.2 174.5 1.4 144.7 128.5 182. Figure 11: Worldwide mobile handset sales to end-users (m units) 2008 Asia-Pacific Eastern Europe Japan Latin America Middle East and Africa North America Western Europe Worldw ide Source: Gartner 2009F 479. Gartner now expects capital equipment spending to hit US$29. 2009 smartphone sales reached 172.1 40.2 231.2 291.9 126. driven mostly by smaller screens (40 inches and below).3 days as at end-1Q10 from 68.1 198.8% from 2008. iSuppli expects inventory levels among semiconductor suppliers to decline to 68. down a mere 0.2 321.6 Handset sales have levelled off.8m units.9 142. industry research. Despite an expected resumption in growth in 2010. totalling 53. DisplaySearch projects 22% growth. All segments of equipment spending are expected to grow more than 70% yoy in 2010. With continued strength in demand.4bn (+76% yoy) in 2010.3% yoy.5 444.8 140. Smartphone sales continued to grow strongly in 4Q09. vs. an upward revision from its previous forecast of US$25.9 2013F 131. According to Gartner. There have been a few bright spots in the consumer electronics space.7% decline in Sep 09. thus translating to higher ASPs and sales volumes for equipment suppliers like Avi-Tech.0 2010F 546. semiconductor demand could outpace supply and capacity increases. Strong upsurge in semiconductor equipment spending expected.5 in 4Q09. up 8.6 142.5bn (+56% yoy) back in Dec 09.4 453. For 2010. stockpiles will be very low.2bn units in 2009. the handset industry ended 2009 on a very positive note.1 34.2 165.3 Inventory levels are lean.1 2012F 130.7 287.0 34. Worldwide handset sales totalled 1.1 96. up 23.214. while inventory levels in 1Q10 will remain at equilibrium with demand.9 312. the trend of lean inventory levels is positive as any pick-up in demand would have ripple effects throughout the industry.9 182. up 41.
1% 22.6 0.3 -30.5% 2.6% 5.6% 2013F 54.4 24.0 -8.1% 4.4 19.0 14.2% 13.9% 2.0 -46.7 -45.6 15.9% 29. both orders and billings fell sharply between end-2008 and beginning 2009.3 -27.4 55.0% 28.9 20.5% 18.7 14.5% 30.6 -2.2 75.4% 2011F 51.4% 1.9 76.9% 16.9 -30.7 -31.8% 2.4 0.7% 4.22x in Feb 10.0% Book-to-bill ratio trending higher.Figure 12: Capital spending Semiconductor Capital Spending ($'bn) Growth (%) Capital Equipment ($'bn) Growth (%) Wafer Fab Equipment ($'bn) Growth (%) Packaging and Assembly Equipment ($'bn) Growth (%) Automated Test Equipment ($'bn) Growth (%) Other Spending ($'bn) Growth (%) Source: Gartner (March 2010 estimates) 2008A 43.5% 35.0% 11.8% 29.3 26.2 -32.7% 24.5 -2.6% 2012F 61.3% 17.4 10. CIMB Research No 9 De c/ 0 9 Ja n/1 0 Fe b/1 0 Fe b/0 9 M ar /09 Ju n/0 9 Ja n/0 9 Se p/ v/ 0 .8 25.7% 13. up from a low of 0.0 0. Figure 13: Book-to-bill ratio (x) Book-to-bill ratio (x ) 1. This also marks the eighth consecutive month of an above-parity reading and signals a likelihood of higher capital spending in 2010.3 72.8% 4.9 9.1% 9. Nonetheless.0 19.3 -45.8% 2009A 25.8% 28.2 1. book-to-bill ratios (3-month average) among North American firms rebounded to 1.0 27.4 -31.9% 36.9 34.47x in Jan 09.4% 2010F 40.9 17.0% 5.2 -15.4 -40.9% 34.1 19.2 0.0 Ap r/ 0 9 M ay /0 9 Ju l/0 9 Au g/ 09 t/ 0 9 Oc 09 Source: SEMI.7 -16.4 1. following a general recovery in the macro environment.2% 2.0% 2.4% 19.4 76.2 -12.8 0.3 -24.2% 36.0% 14.0 0.7% 2014F 53.3% 5.5% 2.4% 2.2 -23.9 -40.7% 42.0 -2.0 -24. As a result of rapid demand deterioration and inventory corrections.
Nonetheless.9 1.0 0. semiconductor demand has picked up since then as sales in the mobile phones. Due to lower costs of production and raw materials.0 0. . This move has in fact shown results with increased sales in the region aiding the Group’s recovery in the Burn-in Boards and Boards Manufacturing business segment. Going forward. increased sophistication of electronic products and complexity of semiconductor devices are likely to result in higher capital outlays for Burn-In Equipments. Avi-Tech set up a wholly-owned subsidiary in US in Jul 08. Quarterly revenues from the two segments had in fact grown sequentially since 3QFY09. We thus believe that the Group is poised to benefit from the uptrend in semiconductor spending in the US. Avi-Tech’s sales and net profit fell by 58% and 54% respectively in FY09. Avi-Tech’s niche in the area thus puts it in good stead to benefit from the long-term trend. backed by strong positive industry data-points.6 0. we believe that demand bottomed out in 3QFY09 (end-Mar 09). While recovery had been relatively slow. Company 2Q09 3Q09 4Q09 1Q10 2Q10 Expanding horizons in US. PC and other IT markets recovered.Company outlook Ride on the semiconductor upturn. In particular. Long-term fundamental demand for these two segments also remains intact.0 1Q09 Source: CIMB-GK Research.5 0. which will in turn fan outsourcing trends in the industry. we believe recovery could gain traction in upcoming quarters. Company Engineering serv ices Burn-in board Burn-in and related serv ices 2Q09 3Q09 4Q09 1Q10 2Q10 Figure 15: Quarterly net profit 2. Figure 14: Quarterly sales 12 10 Quarterly sales (S$'m) 8 6 4 2 0 1Q09 Source: CIMB-GK Research. we expect Avi-Tech’s Burn-in equipment design and manufacturing and Burn-in related services segments to power the Group’s recovery on the back of a wider product range offering and expansion in the US market.5 1. Particularly.9 1.1 1. To raise its profile in the US market and provide better after-sales service for its US customers.9 1.0 Quarterly net profit (S$'m) 1. As a result of weaker semiconductor demand in light of the macroeconomic slowdown. the Group has a cost advantage over its other peers based in US.
While revenue contributions from non-semiconductor industries remain low.Non-semiconductor businesses gaining traction. Meanwhile. Under the former. With its large cash hoard. the Group has delivered over 400 Digital Imaging and Detection systems todate.8m as of end-Dec 09. will aid in raising contributions from these areas over time. Avi-Tech intends to manufacture and sell energy-saving LED lights under its own brand and has since successfully secured a US wholesale channel for future sales. the Group is well-positioned to pursue inorganic growth through potential M&As. we believe that favourable market trends. under the ‘green’ sector. As semiconductor demand remains highly cyclical and volatile. we expect order flows to pick up in FY10 with a sustained recovery in demand in US. increased capabilities and market acceptance for the Group’s products. Figure 16: SWOT analysis Strengths • Experienced management team • Strong player in the niche field of Burn-in services • Strong balance sheet • • • • Opportunities Strong uptrend in semiconductor demand Expansion in the US market Diversification into non-semiconductor businesses Trends of outsourcing of Burn-in services Weaknesses • Reliance on major customers • Susceptibility to downturn in semiconductor industry Threats • Slowdown in semiconductor industry • Credit default risks • Foreign exchange risks Source: CIMB-GK Research . the Group’s financial position remains strong and it is in a net cash position of S$45. While we have not factored these in our estimates due to the lack of concrete details. we believe that synergistic M&As could catalyse growth for the Group. Award of the ISO13485 certification (Quality Management Systems for Medical Devices) will also aid Avi-Tech in winning projects in the area. Avi-Tech plans to diversify its business through forays into the medical and life sciences sector and the ‘green’ sector. While Avi-Tech experienced some delays in orders in the area in FY09. Potential M&A? Despite weakness in Avi-Tech’s business as a result of the recession in FY09.
a slowdown in the industry could result in sharp declines for Avi-Tech’s products. The bulk of AviTech’s revenue comes from the semiconductor industry. Delta Design and Panasonic Semiconductor. the firm seeks to minimise currency exposure. Advanced Micro Devices. through the use of natural hedges by matching assets and liabilities. a major decline in the value of the USD could result in foreign exchange losses for the firm. contract terminations could negatively impact its profitability. Avi-Tech derived approximately 70% of its FY09 revenue from its four largest customers. Nonetheless. . namely Infineon. As Avi-Tech does not enjoy long-term contracts with its customers. Concentration of its receivables among these four customers (who cumulatively accounted for 54% of Avi-Tech’s total trade receivables in FY09) would also mean that collectability could be affected should there be a drastic weakening of these companies’ financial positions. wherever possible.Risks Susceptibility to downturns in the semiconductor industry. Reliance on major customers. As 24% (FY08: 48%) of Avi-Tech’s FY09 sales are derived from US-based semiconductor firms where sales are denominated in USD. Nonetheless. The industry is also characterised by rapid technological changes which might result in high capital outlays should the Group’s technologies and capabilities be rendered obsolete. thus threatening its profitability and financial position. Foreign exchange risks. the Group controls credit exposures through ongoing credit evaluation of its trade receivables and reviews of customer credit limits. As this industry is highly cyclical.
While both the top and bottom lines will likely dip in FY10 due to a slower recovery in 1HFY10.8 3.9 6.3 5.6 28.7 36.0 4. sales jumped 92% yoy in FY07 on the back of strong sales to the US by the Engineering Services segment.1 16.9 36.3 6.1 31.3 FY11F FY10F 10.6 Sales .2 Burn-in and related services Burn-in board Engineering services Source: CIMB-GK Research.RHS 18 16 12 10 8 6 4 2 0 Net profit (S$'m) 14 Source: CIMB-GK Research.5 7.3 8. Nonetheless. Figure 17: Sales trend and composition 80 70 60 Sales (S$'m) 50 40 30 20 10 0 FY04 FY05 FY04 15.9 4.3 36.0 8. Going forward.9 FY12F FY11F 14.3 6.9 7.7 14.7 27.7 22.0 27. Avi-Tech’s revenues grew steadily between FY04 and FY08.3 FY10F FY09 9.5 7.4 22.3 74. In particular.6 7. as a result of weaker semiconductor demand due to the economic downturn.Financials Growth to continue from FY11.4 47.5 11.9 40. Avi-Tech is set benefit from the uptrend in the semiconductor industry and its expansion in US.9 FY12F 15. we expect sales and earnings growth to gain traction from FY11.4 31. Company Figure 18: Historical and forecasted net profit 80 70 60 Sales (S$'m) 50 40 30 20 10 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F FY12F 4.5 2.4 74.5 16.2 6.2 15.6 FY08 FY07 22.5 36.7 40.7 28. Company .5 10.6 Engineering serv ices Burn-in board Burn-in and related serv ices FY06 FY05 20.6 8.5 4.4 FY09 FY08 19. Sales from its Burn-in board and Burn-in and related services segments will thus drive its revenue.1 40.LHS Net profit .5 FY07 FY06 22.8 70. the Group’s revenue and profit declined 58% and 54% respectively in FY09.3 7.8 70.
5 49. excluding any major M&As. This still translates into an undemanding CY11 ex-cash P/E of 9.8 43.1 20 15 10 Free cash flow (S$'m) 5. pegged at 1. Company Strong FCF and financial position. This compares favourably with other semiconductor-related companies in the region. Going forward. Figure 20: Net cash and Free cash flow 60 50 Net cash (S$'m) 40 30 20 10 0 FY08 Source: CIMB-GK Research.7 45. Avi-Tech is in a net cash position of S$45.3 6.5x CY10 P/BV.4 46.2 FCF . We believe it will continue to build up its cash hoard despite decent dividend payments given its limited capex spending in the near term. with the strong balance sheet.7 5.13 as at end-Dec 09 represents 65% of its current market cap. Avi-Tech only trades at about 3x CY11 P/E. the Group is poised to pursue any potential M&A opportunities. After a difficult FY08 and FY09. Company. This will further strengthen Avi-Tech’s cash position. Undemanding valuations with strong balance sheet and good cash flows. Net cash .30. . thus leaving it with ample room to continue or increase its dividend payouts. we expect slight improvements in overall margins with increased contributions from the Burn-in related services and Burn-in Board segments which yield higher margins.RHS 53.5 5 0 FY09 FY10F FY11F FY12F Valuation and recommendation Initiate with BUY with target price of S$0.8m as at end-Dec 09. Ex-cash.LHS 14. Avi-Tech has been paying dividends consistently since its listing in 2007. in line with the recovery in semiconductor industry. The stock’s net cash per share of S$0.5x. Avi-Tech saw lower margins in FY07 and FY08 due to higher contributions from the lower-margin engineering services segment. we expect free cash flows to remain positive over FY10 – FY12.Gradual recovery in margins.7 3. We thus expect earnings to bottom out in FY10 before recovering in FY11. Figure 19: Historical and forecasted margins 50% 45% Margins (%) 40% 35% 30% 25% 20% 15% FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F FY12F Gross profit margin (%) Net profit margin (%) EBITDA margin (%) Source: CIMB-GK Research. in line with valuations of semiconductor-related stocks in 2007 during the previous semiconductor up cycle. we expect Avi-Tech to ride on the strong semiconductor cycle upturn. With positive cash flows from operations and relatively low capex projections. Furthermore.
Put a stop at S$0. NR = Not Rated Source: Company. If this level fails to hold.3 na na 4.04 0. H = Hold.0 na na 14.12 0.30 NA NA NA NA NA NA 0.15 price (Local) 0.8 na na nm na 18.0 0. S = Sell.3 5. • Any pullback towards the 30-day SMA (currently at S$0.09 0.5 Price Recom.1 12.17 to limit exposure.5 CY2011 9.155 and S$0.0 na na 9. which made it a good trading stock.2 na 3.3 na na 15.36 NA NA AVIT SP ASTI SP ELL SP GTC SP MMH SP STAT SP SUNR SP UMSH SP AEM SP MIT SP Technical BUY • Prices have been gyrating in a trading band over the past few weeks.24 0.43 1. next downside targets are S$0. • Technical indicators also show encouraging signs. which increases the odds of it inching past the resistance trend line.14. The consolidation process also helps to strengthen the basepattern.795 19 67 12 23 P/E (x) CY2010 11.5 na na 1. Bloomberg Core Mkt cap (US$ m) 50 33 48 54 43 1.6 Div yield (%) CY2010 3.7 na na 0.9 na na na 4. MACD has finally turned positive while its RSI is also above the 50-neutral mark.175) is a good opportunity to accumulate.6 6.13 0. AVIT) * Book value of ASTI Holdings contains approximately 15% intangible assets ** Book value of UMS Holdings contains approximately 33% intangible assets B = Buy.08 0.8 6.9 0. . Immediate resistance is at S$0. B NR NR NR NR NR NR B NR NR (Local) 0.1 na na 3. CIMB-GK Research.Figure 21: Semiconductor-related companies Target Bloomberg ticker Avi-Tech Electronics Ltd ASTI Holdings Ltd* Ellipsiz Ltd Global Testing Corp Ltd Micro-Mechanics STATS ChipPAC Ltd Sunright Ltd UMS Holdings Ltd** AEM Holdings Ltd Manufacturing Integration Simple average (Excl.1 4.225 and S$0.9 ROE (%) CY2010 8.21 0.1 9.5 na 0.7 na na 4.24 next.9 P/BV (x) CY2010 1.2 na 7.7 na na 12.205 while a breakout should lift prices towards S$0.20 0.
Over the course of his career. He oversees and manages the financial and accounting functions of the Group. finance and general management. Source: Company . He has been in private practice for more than 38 years and has been the managing partner of Messrs Khor Thiam Beng & Partners since 1987. He was appointed to the Board on 30 Oct 06. Mr Teo holds a Bachelor of Commerce (Accountancy) degree from Nanyang University of Singapore and is a Fellow of the Association of Chartered Certified Accountants (FCCA) and the Institute of Certified Public Accountants of Singapore (FCPA). He has more than 28 years of experience in accounting. He was appointed to the Board in 1984. Lim Eng Hong Chief Executive Officer Mr Lim was the founder of the company and is its CEO.Management Khor Thiam Beng Non-Executive Chairman Mr Khor is the Non-Executive Chairman. Mr Lim was the test manager in charge of semiconductor testing and burnin at National Semiconductor. Mr Khor’s areas of practice include real estate. Mr Teo had held top positions in finance in various private and public-listed companies. Mr Lim holds separate Diplomas in Telecommunication Engineering from the Singapore Polytechnic and Management Studies from the Singapore Institute of Management. Prior to setting up the company. corporate and banking matters. He is an Advocate and Solicitor of the Supreme Court of Singapore. Wilfred Teo Chu Khiong Chief Financial Officer Mr Teo is the Chief Financial Officer. part of a US multinational corporation. a Commissioner for Oaths and a member of the Law Society of Singapore and Singapore Academy of Law. Mr Lim oversees overall business and is particularly involved in the Group’s diversification into related businesses. He has more than 35 years of experience in the semiconductor industry and has been the main driving force behind the growth and business expansion of the Group. Mr Khor holds a Bachelor of Law degree from the University of Singapore.
8 11.5 17.8 8.5 22. 5) (2. 7 1. 6 16.6 (1.2 18. 8 47.0 56.9 (3.2) 2.5 18. 7 14.3 (2. 0 2.4 61.9 345.9 14.1 2009 31.5 16.8) (55. 4 55.0 17.0 1. 0 (1. 1 16.7 2.4 23.7) 1. 5 0.6 24.4 345.Financial tables PROFIT & LOSS (S$ m.9 (29.0 50.2 345.4 2009 (57.1 1.2 2012F 17. 0) (3.0) 0.19 2009 6. CIMB-GK estimates 2008 74. 1 1.4 4.5) (0. 5) (0.9 6.6) 0.7) (3.0 9. 2) 0.8) 0.6 0.9 0. 4 2011F 36.5 0.4) 21.3 57.4 2.6 1.5 66.6 8.2 0.9 63.0 20.5) 0.7 169.2 58. 9 (22.0 75. 7) 19.0) 16.5 2.6 43. 1 5.2 2009 14.3 (24. 3) 3. 5 (0. 8 0.2 62.7) 7.6) 5. 9) 5.9 8.9 77. 8 5.7 2008 5.1 9 2010F 5.8 2012F 40.6 70. 8 5.0 4. 7 20. 2 345.9 0. 5 29. 9 0.5 70.1 16. FYE Jun) Revenue Operat ing expe nses EBITDA Depreciatio n & amortisation EBIT Net interest & invt income Associates' contribution Exceptional item s Pretax profi t Tax Minority interests Net profit Wt.8 (1.4 6.5 10.0 5.0 (0. 8) 4.2 345.4 64. FYE J un) Pre tax profit Depreciatio n & non-cash adjustment s Working capital changes Cash tax paid Others Cash flow from ope rations Capex Net inve stm ents & sale of FA Others Cash flow from investing Debt ra ised/(repaid) Equity raised/(repaid) Dividends paid Cash int erest & oth ers Cash flow from fina ncing Change in cash Change in net cash/(debt) Ending net cash/(debt) KEY RATIOS (FYE Jun) Revenue growth (%) EBITDA growth (%) Pre tax marg ins (%) Net pro fit margins (%) Int erest cover (x) Effective tax rates (%) Net dividend payou t (%) Debtors t urnover (days) Stock turnover (days) Creditors t urnover (days) Source: Company.2 19. 1) 0.2 (31.6) 8.0 6. 0) (31.6 1.3 17.0 0.9 0. 6 66.8 1.1 7.7) (1. shares (m) Shares at year-end (m) BALANCE SHEET (S$ m. 7 345.5 0.4 (1.7 6.6) (2.2 65.9 (1.0 19.4 23.2) 0.9 6.2) (0.7) (0. 2 (2.2 0.9 0.18 2008 14. 0 6.6 4.4) 6.2 101.1 2.6) 0.21 2011F 8.7 0.4 5.9 10.4 (2.5 (1.1) 7.6 54.9 34.1 17.1 3.1 70.7 7.2) 3.9 350.4 2008 15.3) 14.2 345. 6 0.9 22.0 53.5 18.3 2.1 2.8 (7.6) (4.6 345. 2 4.7) 26.3 1.0 (3.8 18.1 29.1 16.4 16.5 0.7 0.0) 11.5 2. 5 2010F (11.0) (2. 2 2010F 15.5) 6. 6) (0.4 0.8) 20.1 14.9 1.3 64.3 (58.1 0.0 33.3 1.0 187.1 33.4) 7.2 2011F 16.4 8.9 0. 4 1.6) (2.9 (0.4 350. 1 46.5 1.9 1.1 2012F 8.3 5. 6 3.4 57.1 1.7 45.8) 0.2 2010F 27.1) 5.1 2.5 (19.3 7.5 (2.1) 7. 9 0.0) (2. 2 82.0 24.6 6. 30 Jun) Fixed a ssets Int angible assets Other lon g-term assets Total non-c urrent as sets Cash and equivalent s Stocks Trade debtors Other curre nt assets Total current assets Trade creditors Short-term borrowing s Other curre nt liabilities Total current lia bili ties Long-term borrowings Other lon g-term liabilit ies Total long-term liabilities Shareholders' funds Minority interests NTA/share (S$) CASH FLOW (S$ m.2 2011F 32.4 . 6 (1.3 (1.6 0.3 (1. 6) (2.8 (3. 3 61.6 3.0 37.6) (1.8 6. 5 1.9 1.3 33. 22 2012F 9.3 0.0) (0.0) (0. 5 0.7) (0.7 51. 0 52.9 (0.5 7.5 1.6 (1. 4 6.0 (3.6 3.1 16.3 (2.9 2.7 49.5) 0.
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