AMTEK (Lim&Tan)

S$0.955-AMTK.SI

• At 95.5 cents, Amtek is down 27% from its Dec’10 IPO price of $1.30, half cent below its post listing closing low of 96 cents and only 1 cent above its post listing all time low of 94.5 cents (hit on 8 Dec’10).

• It is also down 32% from its all time high of $1.41 reached on 21 Jan’11 (when several local and foreign brokers initiated coverage on the stock with bullish forecasts and outperform calls).

• During its IPO in Dec’10, we were not enthusiastic about Amtek and had then recommended investors to give the IPO a miss due to its steep valuations compared to its peer group average.

• But with the stock having dropped 27% from its IPO price, 32% from its all time post listing high and currently retesting its post listing all time lows, we believe the stock is worth accumulating, especially on further price weakness.

• The reasons are as follows:
(a) consensus expectations for full year ending June 2011 profit forecasts have since come down to more realistic levels recently due to the company’s disappointing results in 3Q ended March’2011 on the back of weaker than expected hard disk drive performance;

(b) we understand that management is currently quite comfortable with the market’s 4Q ending June’2011 expectations with profit expected to rise 42% qoq and 371% yoy to a record US$14mln on the back of stabilization of the hard disk drive business, strong growth of their automotive, electronic & electrical business segments due to outsourcing and relocation of manufacturing to Asia;

(c) the company has committed to pay about 50% of their earnings as dividends for their upcoming full year ending June 2011 results, potentially yielding about 6%; and

(d) consensus remains bullish on the stock due to its undemanding PE of 6-7x against growth potential of 20-25% going forward.

• One risk factor is that its major shareholders who are private equity owners (Metcom Group owns 28.3% and Standard Chartered Bank 28.3%) could potentially off-load shares given that their 6-month moratorium just expired on 1 June’2011. During the IPO they had sold 230mln vendor shares at $1.30 each, raising $299mln. They had spent $516mln in May’2007 to privatize the company.

• However, we note that despite CMIA’s consistent selling of China Minzhong, its share price has performed well since listing, underpinned by its robust fundamentals.