We previously covered three key drivers for the Singapore technology sector (M&A, special dividends and earnings surprise) and in this article, we highlight five tech stocks that CIMB Research recommends with the potential of a positive surprise.
1. AEM: Earnings surprise could be off the charts
AEM Holdings is a leading semiconductor test handler supplier to a major North American semiconductor company.
Its test handler products are patented, putting them in a two- to three-year advantage ahead of potential competitors. During its 1Q17 results announcement, AEM guided for 9M17F revenue of $142 million and pre-tax profit of $17.5 million.
According to CIMB Research’s analysis, AEM is on track to deliver about 300 percent year-on-year growth in net profits for 2Q17F and 136 percent year-on-year growth in net profit for 3Q17F.
CIMB Research: AEM Holdings Limited (SGX: AWX) – BUY; Target Price $3.39
2. CEI: Highest dividend tech stock in SG
With a track record of more than 26 years and 70 customers, CEI has ~50 percent sales exposure to the medtech/life science sector.
CIMB Research views the established contract manufacturer as an attractive dividend play and potential M&A play. In FY16, CEI paid $0.10 dividend per share, which is almost 100 percent of its net profit.
That translates into 9.3 percent dividend yield, the highest among Singapore-listed tech stocks. Given its diverse customer base, robust cash-generation capability and fragmented shareholding structure, it wouldn’t come as a surprise if CEI pays out high dividends in FY17 too.
CEI is also a potential M&A target especially for private equity firms and peers looking to expand their geographical footprints.
CIMB Research: CEI Limited (SGX: AVV) – BUY; Target Price $1.11
3. Jadason: Profitability likely; special dividend on the way
Jadason is one of the leading printed circuit board (PCB) driller based in China. Its main business is the drilling of PCBs and distribution of PCB manufacturing equipment and drilling machines.
Jadason has a practice of paying dividends whenever operations are profitable. CIMB Research quoted that Jadason previously paid a dividend payment of $0.50 when operations were profitable.
Apart from its potential dividend component, there is also a potential for Jadason’s earnings to surprise on the upside.
CIMB Research cites the possibility of stronger-than-forecast orders from a major customer and a gross margin expansion as the key driver of this earnings surprise.
CIMB Research: Jadason Enterprises Limited (SGX: J03) – BUY; Target Price $0.17
4. Memtech: Double Digit Earnings Growth To Drive Valuation
Memtech is in one of the brightest spots in the precision manufacturing industry. Memtech possesses strong core competencies in liquid silicone rubber (LSR) and multiple injection technology.
Because of its core competencies, it has helped Memtech established into a well-established supplier for both the automotive and consumer electronics industries.
Both the automotive and consumer electronics segments have been driving Memtech’s net profits with a double-digit sales growth.
As such, CIMB Research projects Memtech’s earnings growth of 22-56 percent per annum over FY17-19F, “underpinned by increasing orders from existing customers and margin expansion”.
CIMB Research: Memtech International Limited (SGX: BOL) – BUY; Target Price $1.09
5. Sunningdale: Prime target for PE Firms; Memtech a possible target acquisition
Sunningdale is a plastic injection moulding company with more than 30 years of experience in the precision plastic injection moulding and mould-making industry.
Since 2005, Sunningdale has been consolidating some of the industry players in various M&As.
CIMB Research believes that there is a potential for Sunningdale to acquire Memtech to derive “synergistic benefits” from the acquisition.
Sunningdale’s cash generative business also puts it in the line of sight of many private equity firms to acquire Sunningdale.
CIMB Research: Sunningdale Tech (SGX: BHQ) – BUY; Target Price $2.19
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