RHB Group Research has upgraded its call on Avi-Tech to “buy” from “hold” at the same target price of 42 cents.
This is expected to give the counter a 17% upside from its 36 cent price, analyst Jarick Seet writes in a Feb 14 note.
His move follows the 70.8% y-o-y jump in the burnt-in tester’s earnings to $1.98 million in its 1HFY2022 ended Dec 31 2021.
In this time, the group’s revenue rose by 22.6% y-o-y to $15.51 million, following stronger numbers from its printed circuit board assembly (PCBA) manufacturing and engineering services business segments.
With an $8.7 million contribution to the group’s topline in 1HFY22, the manufacturing and PCBA services segment makes up the largest contributor to revenue. By contrast, the segment raked in $7.8 million in its 1HFY2021 ended on Dec 31 2020.
Similarly, revenue from engineering services more than doubled to $3.5 million in 1HFY22, compared to $1.4 million in the previous corresponding year.
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Going forward, Seet expects the PCBA manufacturing and engineering services segments to continue doing well in 2HFY2022. However, he cautions that the “high margin burn-in segment remains muted, due to the on-going chip shortages in the automotive sector”.
In any case, Seet notes that the company “has an attractive balance sheet and always pays attractive dividends”.
The management has declared an interim dividend per share of 74 cents for 1HFY2022, representing a 65% payout ratio. Going forward, he has penciled a 6.3% yield for FY2022 ending on June 30.
Opportunities also lie in Avi-Tech’s successful completion of a corporate restructuring to ring-fence assets and strengthen capital structure efficiencies for future growth expansion.
“Coupled with the fact that management is actively exploring M&A opportunities and hopes to close a deal in the near future – we believe any potential M&A should be earnings-accretive,” explains Seet.
“With a net cash balance sheet and good 32 cent dividends, coupled with the chips shortages becoming likely to ease, we think the group’s financial performance should continue rebounding in 2HFY22, with the main drivers being its PCBA manufacturing and engineering services divisions,” he adds.
Shares in Avi-Tech closed flat at 36 cents on Feb 15.
Cover image: file photo
