Background: A small high-mix, low-volume contract manufacturer, serving customers in the industrial equipment segment, such as analytical instruments, medical & healthcare equipment, semiconductor equipment, oil and gas industries and electro-luminescent displays for industrial applications. It also has a 10% stake in a Catalist-listed equipment manufacturer, Kinergy, that it purchased just before the latter’s IPO in 2007. The company has four facilities in Singapore, Batam, Ho Chi Minh City and Shanghai.
Key ratios…
Price-to-earnings: 7.4x
Price-to-NTA: 1.2x
Dividend per share / yield: 1.5 cents / 13.2%
Net gearing: 0.1x
ROE: 14%
Share price (S$) S$0.111
Issued shares (m) 346.8
Market cap (S$ m) 38.5
Free float (%) 65.9%
Recent fundraising activities Issued 19.8m new shares as partial payment for acquisition of IC Equipment from Autron Corporation in 2008
Financial YE 31 December
Major shareholders Republic Technologies, an indirect subsidiary of Temasek Holdings (18.1%), Tien Sing Chong (10.0%)
YTD change -10.7%
52 week px range $0.103-0.142
Our view
August backing... CEI is an early spin-off from Singapore Technologies, which explains why Temasek is still a substantial shareholder, which currently owns 18% of CEI through Republic Technologies. CEI used to be known as Chartered Electronic Industries in the 1980s, when it was involved in defence electronics but made the transition to commercial electronics in the 1990s just prior to a management buyout in 1998 (and subsequent listing in 2000).
…but could have been so much more. CEI’s current market cap of $38m is hardly changed from its listing cap of $30m (IPO price $0.10, adjusted for bonus issues). While revenue has increased significantly from $25m in 1999 to $96m in 2009, its bottomline is still relatively miniscule. Even at the peak in 2007, after-tax earnings came to just $6m, and it has been sliding ever since as its business came under inflationary pressures (eg weakening in US$ that affected its mostly US$ billings) that saw gross margin slide steadily from 26% to 20%.
High dividends even if growth is lacking. Still, CEI has tended to pay relatively high dividends over the years, with payout ratios of almost 100% in 2006 and 2007, and 60-70% during the lean years of 2008-09. In the past five years alone, it has paid out almost 90% of its earnings in dividends, accumulating to more than $0.06 a share. Again, this is not surprising as it it reflects a mature business with limited prospects for growth.
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