Sunningdale Tech has declared a dividend of 3.0 cents for 1HFY2018, up from 2.5 cents a year ago. The leading manufacturer of precision plastic components has paid increasing dividends since 2010 and its payout ratio of 48.5% for 1H2018 is a record high.

KhooBooHor1 8.2016"Our order book across all segments remains stable," said Sunningdale CEO Khoo Boo Hor.
NextInsight file photo

The Group's net profit rose by 18.8% year-on-year to S$9.7 million for 2QFY2018, helped by a favorable USD against the functional currencies of the Group's entities.

Other highlights for 2Q2018:
  • Revenue is up 2.4% yoy to S$181.9 million, driven by growth across the Automotive, Healthcare and Mould Fabrication segments.

  • Operations at the Group’s 20th manufacturing facility in Penang have commenced. Pilot runs for mass production scheduled for ramp up in 2H2018 remain on track.

  • Capital expenditure was S$12.3 million for technology and new machinery. The Group has made a strategic decision to shift to high-margin complex engineering parts within its Consumer/ IT segment.

  • Outlook within each business segment remains stable entering the seasonally stronger 2H2018.

 

Financial Highlights

2QFY2018
(S$ m)

yoy change

Revenue

181.9

2.4%

Gross profit

23.0

-16.8%

Gross profit margin

12.7%

-2.9ppt

Net profit attributable to shareholders

9.7

18.8%


For more information, refer to its 2QFY2018 results media release here.

Below is an excerpt of questions raised at the Group’s 2QFY2018 briefing on 8 August and the replies provided by CEO Khoo Boo Hor and CFO Soh Hui Ling.

Q: Does the trade war between the U.S. and China help any of the 20 plants that Sunningdale has around the world?

The cost of manufacturing in Asia is no longer as low as 10 to 20 years. Even before the trade war erupted, we have already positioned ourselves as a manufacturing services provider with a global presence. That is why we have plants in Europe, Mexico, and Brazil.

Today, about 45% of our revenue comes from China, 45% from South Asia, and 10% outside Europe. Business for our Mexico plant is growing quite fast because some customer industries are regional, especially in the automotive sector.

The trade war affects those with plants in China. We have a competitive advantage if a customer wants to move to South Asia, Mexico, or Europe because we have a presence in these locations. We are monitoring the situation very closely.

Stock price 

$1.37

52-week range

$1.21 – $2.40

PE (ttm)

9.6 x

Market cap

S$261 m

Gearing

0.28 x

Dividend
yield 
(ttm)

4.32%

Year-to-date return

-29.8%

Source: Bloomberg/ Company

Production capacity for making tools, and for molding machinery, as well as the expertise of engineers and technicians is not something that can be built overnight, not even in North America.

Even with the tariffs, North America still needs to rely on China's manufacturing capacity. My view is that the shift in demand will be gradual, rather than overnight.


Q: What is the chance that your customer runs into trouble because of the trade war?

We have about 30 customers that contribute to about 70% to 80% of our revenue. Even if one or two customers get into financial trouble, the impact will be only around 5% of Group revenue.


Q: Forex impact seems to have a big impact on your bottom line from year to year. What is your strategy for managing forex risk?


SohHuiLing 8.2016Sunningdale CFO Soh Hui Ling
NextInsight file photo
We don't hedge. We make sure we are protected through terms and conditions in our contracts that allow us to negotiate for a price increase in event of increases in material prices, whether it is caused by oil price or currency fluctuations.

There is a lag effect on the price adjustment because it takes about 6 months for us to renegotiate.

Half of our revenues are denominated in the U.S. dollar. In the last 2 years, Bank Negara has required all collections from overseas to be changed into the Ringgit when it is deposited in any bank in Malaysia. The only exception is when you can prove that you are committed to a foreign currency payable that is due within 6 months. This has made it difficult to hedge forex exposure in Malaysia.

Target prices

CGS-CIMB

$2.05

UOBKH

$2.00

Q: What new projects are you launching in 2H2018?

We are adding new machinery at a couple of sites where our customer has extended additional programs to us. This is where we will incur capital expenditure.

We are giving up some top line to secure higher margin projects with a precision level as high as 20 microns.


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