Amtek’s 1QFY Jun12 results showed resilient revenue growth of 9%

Background:

Amtek Engineering is a precision engineering company offering end-to-end solutions that encompass design, prototyping, tool/die/mould- making, metal stamping, machining, welding, finishing, assembly and testing. Headquartered in Singapore, the group has manufacturing facilities in eight countries in Asia and Europe.

Recent development:
Despite difficult economic times, Amtek’s 1QFY Jun12 results showed resilient revenue growth of 9% compared with a year ago. But gross and net profit margins declined (NPAT margin fell from 8% to 6%) due to strategic tooling sales done at cost, as well as forex-related losses.

Resilience through diversity.
Amtek prides itself on its diversification strategy in industry segments and geographical locations. Its revenue growth in 1QFY Jun12 came from a number of segments, including a 30% increase in electronic component sales to energy sector customers and a 16% rise in automotive product sales to both China and Europe. This diversity should serve as a buffer against country- or industry-specific shocks for a stock already trading at its historical low of 5.4x PER.

Outlook hinges on China.
Amtek derives 50% of its revenue from China, with Southeast Asia making up 38% and Europe, the rest. However, China reported a contraction in manufacturing activity in December and its foreign direct investment fell for the first time in 28 months. Its export growth is also forecast to halve next year. These worrying trends would be the main risks for Amtek as there seems no relief in sight for the flagging global economy that is reeling from the European and US financial woes.

Management warnings.
Management has warned that in addition to the state of the global economy, the recent Thai floods would have a significant impact on the mass storage sector and the supply chain for the region’s electronics and automotive industries.