Amtek Engineering solid growth with 5% yield

ICB Industry : Industrials
ICB Sector: Industrial Engineering
Principal Business: High precision metal/plastic components: from tooling, stamping to cold forging and mechanical assembly.

Amtek is one of the world's largest precision engineering companies. Amtek is an end-to-end design and manufacturing solution provider for precision components, casing and enclosures. Its recent acquisition of Interplex Industries - a miniature precision engineering player - in July 2014 is fairly positive.

Cross-selling, cost-cutting and growth of automotive sector are three key drivers. Interplex has relationships with original equipment manufacturers (OEMs) including brands like Continental, Denso in Automotive and Apple in mobile devices, likely to result in cross-selling opportunities. There is also ample room to cut costs. Interplex generated $360m sales from 19 factories while Amtek generated $630m sales from 15 factories. Meanwhile, automotive sector is the largest contributor (22% of group revenue) and also secures better margins than other segments. This segment is likely to see double-digit growth with China and US as the key markets. 1Q15 net profit of US$4.1m (hit by one-off acquisition cost of US$4.7m) suggests healthy momentum going forward.

Trading at 9.5x FY15F EPS versus 4-year historical average of 11x. Initiate with BUY and our target price of S$0.74, pegged at 11x FY15F EPS at 15% discount to peers’ average of 13x. The stock also offers over 5% yield. Assuming sustained execution, the stock is quite attractive at 8x FY16F PER and 6% yield. The key risk would be slower-than-expected growth in key markets of US and China.

Amtek Leading Manufacturer With An Attractive Yield

 Amtek is a leading end-to-end design and manufacturing solution provider for precision components, casings and enclosures that are used in a wide range of industries like automotives, servers and consumer electronics. The company was delisted from SGX in Aug 07, as it underwent a major restructuring to streamline its operations and expand its product offerings.

 Expanded service offerings, greater efficiency. Following the restructuring in 2007, Amtek has streamlined its operations and expanded its service offering. Besides metal stamping services, Amtek now offers end-to-end solutions from industrial design to the final assembly of the finished product. The company also expanded its product offerings to integrate plastic and rubber parts into metal components as well as manufacture complex mechanical modules such as cold forging and 3D forming.

 Key products manufactured by Amtek include casings for servers and networking equipment, components for consumer home appliances like washing machines, as well as

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.