• 1Q GP margin increases 2.2ppt
• Trading at 4.1% FY17F yield
• Fair value increases to S$0.85

Solid Set of 1Q17 Results Within Expectations

Memtech International's 1Q17 results were within expectations. Revenue increased 9.8% YoY to US$36.4m, or 21.6% of our full-year forecast. In 2016, 1Q revenue contributed 20.8% of full-year revenue. 1Q17 gross profit increased 24.9% YoY to US$6.6m, boosted by the increase in gross profit margin, which increased from 15.9% in 1Q16 to 18.1% in 1Q17. 1Q17 PATMI jumped 180.7% YoY to US$1.6m. One-off items include a write-back of stock obsolescence of US$0.2m. Excluding this one-off, 1Q17 PATMI made up 18.0% of our full-year forecast, which we deem in line with expectations.

CE Segment Contribution Jumps 54% YoY

On a YoY basis, 1Q17 automotive segment revenue grew ~13% while consumer electronics (CE) revenue jumped ~54%. 1Q17 telecommunications revenue is estimated to have dropped ~38% YoY. As we wrote in our last report, we continue to expect a flattish performance for China’s automotive industry, given that the subsidy for smaller engine cars has been halved after 2016. Nonetheless, we see potential for Memtech to gain market share as it participates in what are known as platform projects, where new components are rolled out to both new and existing car models.

FV Increases to S$0.85

Overall, revenue is projected to increase +2.7% this year, with FY17 automotive and CE segment contributions growing +9.1% and +7.2% respectively, partially offset by declines in the Telco and Industrial & Medical segments. With the favorable change in product mix, gross profit margin is forecasted to increase from 16.0% in FY16 (17.5% in FY15) to 18.5% in FY17. As a result, FY17 PATMI is expected to grow +35.6% YoY.

After applying our new FY17 EPS forecasts against an 11.1x PE and a 7% discount for currency risk, our FV increases from S$0.77 to S$0.85. Our forward FY17 dividend yield stands at 4.1%. While the stock looks reasonably priced against our fair value, we are optimistic of the company’s prospects as both the automotive and CE segments continue to gain momentum. We maintain HOLD on Memtech with a fair value of S$0.85.

Source: OCBC Research - 2 May 2017