AMTEK (Lim&Tan)

S$0.66-AMTK.SI

􀁺 Excluding last year’s US$6.8mln restructuring charge and this year’s impairment loss on available for sale investments of US$1.06mln, 4Q ended June 2011 net profit rose 45% yoy to US$10.7mln, about 14% below expectations reflecting higher than expected cost inflation. As well, management disclosed last evening that they lost a few million US dollar worth of sales due to the negative impact from the Japanese disaster.

􀁺 But the company compensated this by declaring about 56% of their earnings as dividends, ahead of their Dec 2010 IPO promise of at most 50% of earnings as dividends. This has been made possible by its strong free cash flows of US$39mln this year, up from US$35mln last year.

􀁺 At its last traded price, dividend yield is 8.3%.

􀁺 Looking ahead, management said that factory utilization rate has continued to improve in the first 2 months of the new quarter ending Sept 2011 both on yoy and qoq basis, buoyed by several new customers as well as new programs from several existing customers which they declined to provide names due to non-disclosure agreements.

􀁺 Suffice to say, they expect all segments of their end markets to grow, even the weakest hard disk drive sector.

􀁺 However, management did warn that they have to remain careful and watchful about the current ongoing sovereign debt crisis in the Western countries as they account for a big part of global aggregate demand, notwithstanding the increasing influence of Asian consumers. After the collapse of Lehman Brothers at the end of 2008, the company’s orders also experienced a sharp and sudden collapse in the last quarter of 2008.

􀁺 From mid-June 2011 till end-June 2011, Amtek’s single largest shareholder Standard Chartered had bought 9mln shares in the opend market between the low 90 cents to about $1 level, raising their stake from 28.3% to 29.9%. While it did help the stock to stabilize above the 90 cents level in the month of July 2011, the share price has nevertheless come under immense pressure in Aug 2011, hitting its all time low of 56.5 cents on 19 Aug 2011 before rebounding to 66 cents currently.

􀁺 The global sell-down in Asian technology stocks as well as fears of further selling by The Capital Group (they have been selling other holdings such as Singapore Post, Capital Malls Asia and Capital Commercial Trust in recent times as well) who owns 6.99% of the company could be some reasons. They last sold 455,000 shares in Amtek on 12 Aug 2011.

􀁺 But with the sharp sell-down (at half its IPO price and post listing high), management’s confidence in near term business momentum underpinned by their continued robust utilization rates in July-Aug 2011 and 8.3% yield, we are maintaining our BUY recommendation.