In his view, Avi-Tech is currently in a “prime position to ride on the world’s march towards smart cities and digitalisation” after having divested its loss-making US business – in addition to being on track to record stable y-o-y net profit after tax (NPAT) growth of an estimated 10-15% in FY17-18F.
“Avi-Tech Electronics’ (Avitech) burn-in services segment is well positioned to benefit from the rising sophistication of vehicles, and ultimately the advent of driverless vehicles, in our view. With other disruptive technologies in the Internet of things (IoT) era, and the march towards cloud businesses and smart cities, we believe another wave of demand for semiconductor burn-in and other related services is coming, which would be a further boost to the group,” says Seet.
Accretive acquisitions made possible from the group’s over-$31 million war chest for M&As would propel the group in enhancing its NPAT drastically with a combination of debt and cash financing, he adds, although “substandard” M&A acquisitions would conversely present a key risk to this view.
The analyst also notes Avi-Tech’s track record of paying out at least 50% of its NPAT over the past few years, with management indicating it is likely to maintain the ratio going forward.
“With the positive outlook coupled with a strong cash balance, we believe that there may be a potential special dividend in FY17 to reward shareholders – this would likely boost FY17F yield to c.6.5-10%,” he concludes.
As at 10.31, shares of Avi-Tech are trading 5% higher at 42 cents.
