Incorporated in 1981 and listed on the Mainboard of the Singapore Exchange (SGX) in 2007, Avi-Tech Electronics (Avi-Tech) is a total solution provider for burn-in, burn-in board manufacturing and printed circuit board assembly and engineering services in the semiconductor, electronics and life sciences industries. The group operates predominantly in Singapore where it derived 55.3 percent of its FY17 revenue, with 17.9 percent and 11 percent coming from US and Malaysia respectively. Its footprint includes Germany, Philippines, Thailand, Taiwan and China as well.
Plagued by years of losses since FY12, Avi-Tech managed to get back on track on delivering profitability and growth following the disposal of its two loss-making US subsidiaries namely Aplegen and Verde Designs in 4Q15 and 1Q16. In line with the improved performances, Avi-Tech’s request to be removed from the SGX watchlist was approved with effect from 16 September 2016.
Rebound On Opportunity
Lifted by the recovery in the semiconductor industry and coupled with the group’s success in stemming losses from its discontinued US subsidiaries, Avi-Tech turned around a loss of $9.9 million in FY14 to a net profit of $6.6 million in FY15, and continued to deliver successive years of profitability since then with a net profit of $6.2 million in FY16 and $7 million in FY17. Over the last five years from FY13, revenue has expanded at an annual compounded growth rate of 14.1 percent to $40 million in FY17.
As a result of management’s ongoing efforts to contain costs and enhance productivity, gross profit margin has improved significantly from 14.3 percent in FY14 to 24.3 percent in FY15. Although the gross profit margin dipped marginally to 29.5 percent in FY17, the figure maintaining at around the 30 percent level is more than double the margins seen in and before FY14.
We are equally impressed with management’s financial prudence in maintaining a strong financial position and a healthy balance sheet. Underpinned by profitability in its businesses and positive net cash from operations in the last couple of years, Avi-Tech has, as at 30 June 2017, built up a strong cash position of $31.8 million (inclusive of cash and bank balances, fixed and call deposits and held-to-maturity financial investments). Taking into account total bank loans and finance lease of $0.5 million, the group was in a net cash position of $31.2 million. This represents approximately 38.9 percent of its market capitalisation, or equivalent to net cash per share of around $0.18.
Gaining On Growth Momentum
From the historical low of around $0.105 in October 2014 to an all-time high of $0.505 in May 2017, Avi-Tech’s turnaround has lifted its share price by more than four-folds in a period of less than three years. With its closing price of $0.50 on 23 August 2017, the group is valued at a price-to-earnings ratio of 12 times and a price-to-book ratio of 1.7 times. Management has proposed a $0.01 final dividend and $0.008 special dividend which, together with the interim dividend of $0.01, pay out a total dividend of $0.028 for FY17. Assuming that the group will continue to pay out $0.018 dividend per share without considering the special dividend, investors may still look forward to a yield of around 3.6 percent per annum.
Impending trend towards driverless vehicles in the automotive industry has saw an increase in demand for automotive sensors and fail-safe electronic components, which in turn drives the growing needs for burn-in services which Avi-Tech provides. Likewise, the advent of the Internet of Things is expected to benefit the semiconductor industry as a whole, which bodes well for Avi-Tech ready to leverage on its capabilities and expertise to cater to this segment. With the general trend lending strength to its growth, we believe that Avi-Tech could continue to deliver stellar performances in the years to come.