Multichem: Changing landscape
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Multichem
Broker House: CLSA
Analyst: Justin Yeoh
Price: $0.22
Target : $0.217
Recommendation: NA
Downside: 1.36%
Summary:
Printed-circuit board service provider Multi-Chem’s 1H07 sales grew a strong 45% YoY in revenue to S$63.7m, accounting for 55% of our original forecast. Distribution business continues to see strong growth, surpassing the Manufacturing division to account for 65% of 1H07 revenue. Given the lower margins in the distribution business as the company shifts, profitability has come in lower. Our revised forecast has resulted in a fair value of 21.7Scts, maintaining our 6x 08PE.
Better distribution, lower margins. Revenue came in S$5.3m in 2Q07, up 61.4% YoY. 1H07 revenue was up 45%, but gross profit was down 1% YoY. Operating profit was down 42%, largely due to higher operating costs in the Distribution segment, resulting in 1H margins of 9% VS 21% from a year ago. Overall increase in depreciation and salary were part of the reason for the increased in costs. Inventory and receivables are higher due to the change in balance of sales in the two business segments, resulting in lower cash on hand at S$7.9m, compared S$12.6m at the end of March. Effective tax rate is also higher in 1H07 at 31%, compared to 16.6%, lowering net margins to 5% instead of 15.2% in FY06 due to expansion of Distribution business in South East Asia. No interim dividend was declared.
More pressure ahead. Multi-Chem operates in the PCB drilling segment which has lower value than full scale PCB manufacturer, outlook remains though for the segment, especially for the Singapore manufacturing segment. We expect distribution to be the key business driver for Multi-Chem, even as raw material costs dampen the slower Manufacturing segment. The expansion of the distribution business also requires a larger sales force to promote products, while lower utilization of drilling machines will continue to depress manufacturing gross margins. We expect the 2nd half to do better based on seasonal trends.
Fair value of 21.7 Scts. Adjusting our forecast for the lower margins of the Distribution segment, our new 07 net profit comes in lower at S$8.7m. Maintaining our 6x 08PE suggests fair value of 21.7 Scts.
Analyst: Justin Yeoh
Price: $0.22
Target : $0.217
Recommendation: NA
Downside: 1.36%
Summary:
Printed-circuit board service provider Multi-Chem’s 1H07 sales grew a strong 45% YoY in revenue to S$63.7m, accounting for 55% of our original forecast. Distribution business continues to see strong growth, surpassing the Manufacturing division to account for 65% of 1H07 revenue. Given the lower margins in the distribution business as the company shifts, profitability has come in lower. Our revised forecast has resulted in a fair value of 21.7Scts, maintaining our 6x 08PE.
Better distribution, lower margins. Revenue came in S$5.3m in 2Q07, up 61.4% YoY. 1H07 revenue was up 45%, but gross profit was down 1% YoY. Operating profit was down 42%, largely due to higher operating costs in the Distribution segment, resulting in 1H margins of 9% VS 21% from a year ago. Overall increase in depreciation and salary were part of the reason for the increased in costs. Inventory and receivables are higher due to the change in balance of sales in the two business segments, resulting in lower cash on hand at S$7.9m, compared S$12.6m at the end of March. Effective tax rate is also higher in 1H07 at 31%, compared to 16.6%, lowering net margins to 5% instead of 15.2% in FY06 due to expansion of Distribution business in South East Asia. No interim dividend was declared.
More pressure ahead. Multi-Chem operates in the PCB drilling segment which has lower value than full scale PCB manufacturer, outlook remains though for the segment, especially for the Singapore manufacturing segment. We expect distribution to be the key business driver for Multi-Chem, even as raw material costs dampen the slower Manufacturing segment. The expansion of the distribution business also requires a larger sales force to promote products, while lower utilization of drilling machines will continue to depress manufacturing gross margins. We expect the 2nd half to do better based on seasonal trends.
Fair value of 21.7 Scts. Adjusting our forecast for the lower margins of the Distribution segment, our new 07 net profit comes in lower at S$8.7m. Maintaining our 6x 08PE suggests fair value of 21.7 Scts.
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