Another Article from TheEdgeMarket. Is RHB going to initiate a coverage soon?
SINGAPORE (April 15): Is Memtech International the next Innovalues?
Some analysts clearly think so.
Just as Innovalues is seeing its business grow by leaps and bounds following its transformation into a precision engineering firm that makes automotive parts and components, Memtech can expect a resurgence in business as it scales down its keypad and touch-screen production operations to do the same, according to analysts from RHB Securities Singapore and KGI Fraser Securities.
Memtech's products include modules for remote control keys for car manufacturers such as Land Rover Jaguar and Honda, as well as power-window buttons, gear-shift lifters and dashboard controls.
The company has already made some headway in the automotive sector. It chalked up a net profit of US$17.2 million ($23.4 million) last year, reversing a loss of US$4.4 million in 2013.
The turnaround was driven by higher sales of automotive components and consumer electronic products, as well as a one-off gain from the liquidation of a subsidiary.
Of the US$137.6 million revenue generated last year, one-third or US$45.5 million came from the automotive business. This was up from US$29.9 million in 2013.
On its part, Innovalues earned $15.8 million last year, almost double the $8.7 million in made in 2013. Its revenue rose 9.2% to $108.5 million, of which 81% came from the automotive business.
"We believe Memtech will be a company to watch out for," RHB analysts Jarick Seet and Terence Wong wrote in a non-rated note
"With the global automotive industry experiencing robust growth and the recovery in China and the US, we continue to expect strong revenue growth from its automotive business in the coming years."
Memtech used to be a major supplier of keypads to mobile-phone makers such as Nokia and Sony Ericsson. At its peak, the keypad business accounted for as much as 90% of its top line.
When smartphones became popular, Memtech started a factory in 2008 to produce touch screens together with a Korean partner. The venture folded in 2013 as it could not keep up with competition from Taiwanese manufacturers.
The company then sought its fortunes in the automotive industry, a move that is bearing fruit.
Its biggest customer is Kostal, a German company that develops advanced electronic and electromechanical products for leading car manufacturers.
"Memtech, as we see it today, is vastly different from the past," said KGI analyst Renfred Tay, noting that keypads for phones now account for only about 10% of its revenue.
"Growth from automotive components together with the industrial and consumer electronics segments will outpace the decline in revenue from mobile phone keypads," Tay said.
He expects Memtech's revenue to grow 9% to 13% over the next three years, and sees earnings rising 20% in 2015, 24% in 2016 and 29% the following year.
As its bottom line grows, shareholders can expect to be rewarded with higher payouts, according to the analysts, pointing out that Memtech has consistently been paying dividends, even when times were tough.
"The company was also never shy from paying better dividends when business was good," said Tay, who expects Memtech to pay 0.9 cent a share this year, up from 0.6 cent in 2014.
At its current price, Memtech shares trade at less than 0.7 times its 2014 book value and 4.5 times last year's earnings.
Innovalues shares, which more than tripled in value last year, trade at 2.9 times 2014 book value and 13.2 times earnings.