SUNNINGDALE TECH's stock price rose by 4.9% overnight to close at S$2.15 on Thursday (3 August) after it announced an inaugural interim dividend of 2.5 Singapore cents per share for 1HFY2017.

Its stock price has doubled year-to-date from about S$1 for the larger part of last year to more than S$2 currently.  

The market interest stems from its consistent financial performance, with gross margin having expanded steadily from 11.6% in FY2013 to 15.3% in 1HFY2017.

KhooBooHor1 8.2016
LQM000066We prefer securing orders for complex projects and the more expensive tools as they generate better margins.

Khoo Boo Hor
Sunningdale Tech CEO

(NextInsight file photo)

It has paid dividends annually since FY2012.

Highlights for 2QFY2017:

  • Revenue grew 6.6% yoy to S$177.6 million driven by growth automotive and consumer/IT segments
  • Gross profit grew 20.7% yoy to S$27.7 million
  • Gross profit margin expanded by 1.8 percentage points to 15.6%
  • Inaugural interim dividend of 2.5 Singapore cents per share proposed

Excluding the impact of foreign exchange gains/losses and retrenchment costs, the Group’s 2QFY2017 core net profit would have increased by 57.1% yoy to S$10.9 million.

For more info, refer to its media release here.


Below is an excerpt of questions raised at the Group’s 1HFY2017 briefing on Thursday (3 August) and the replies provided by CEO Khoo Boo Hor and CFO Soh Hui Ling.

SUNN briefing 8.2017Full house at 1HFY2017 investor briefing by CEO Khoo Boo Hor. (Photo by Tok Chong Yap)You are paying an inaugural interim dividend of 2.5c. Most companies halve their dividends over interim and final. Does this imply that you will only pay out a 5c final dividend this year, a decrease from last year’s 6c?

Mr Khoo: There are many aspects to consider and we consider shareholders' feedback seriously. During our past AGMs, many shareholders suggested paying interim dividends. We are doing so now as our 1HFY2017 financial results enable us to. The dividend quantum for the second half is subject to further consideration.

It is important for us to strike a balance between preserving cash for dividends and for growing the company. Our payout ratio for 1HFY2017 is actually at 29.6% while FY2016 was 28.7%. We also need to preserve cash as we have a higher capex commitment this year with our Penang plant. Also, having cash on hand would be good if there are good M&A opportunities.

Q: Why did your gross profit margin increase?

Our drive for efficiency and productivity keeps our incremental project return above the impact from headwinds like rising wages and increasing cost of raw materials. Our restructuring last year in some locations also helped to offset some cost pressures.

We are selective in projects, have highly automated processes, and utilization has been generally high.


Q: What are your top products that are driving consumer/IT revenue growth?

2QFY2017
Operating Cash flow S$12.1m Cash Balance S$113.2m

Even within consumer / IT, we have a wide range of products. Historically, we have been very strong in printer cartridges.

We also produce home appliances such as audio entertainment systems, water filters in bottles for individual consumption, personal grooming products, gaming products, and mobile phone SIM cards.

We have strong precision engineering capabilities that enable us to focus on complex products that fetch higher margins. If we just produce simple plastic parts that everyone in China can make, there is no way we can maintain our current margins. Our gross margin will probably be single digit instead.

SohHuiLing3 8.2016
“About 40% of our commited capex of S$35m for FY2017 has been booked.”

- CFO Soh Hui Ling
(NextInsight file photo)

Q: What is the current utilization level for your plants?

Utilization level is generally healthy. We only buy new machines if we secure a relevant project. Utilization level is relatively lower for our new plants.

Q: How much of your FY2017 capex commitment of S$35 million has been booked?

Ms Soh: About 40% has been booked. ‘Commitment’ means we have placed the purchase order for the machine but have yet to take delivery for it.

Q: Do you see yourself as being more stretched in your core structure since smaller plants are not margin accretive?

Mr Khoo: Large scale plants take years to build up. We don’t start out in a new place with a mega sized plant. When we go out of Asia to places like Brazil, we want to do things that the locals cannot do so that we can secure projects that fetch better margins.

Stock price  S$2.15
52-week range $1.005 - $2.18
Market cap S$385.51 m
PE 9.067 x
Dividend yield 3.9%
Price/Book 1.103 x
Source: SGX StockFacts / Company

Q: How many of your plants are of sub-optimal scale?

Our plant in Mexico is medium sized. We want to transform our plant there to mega sized because we see a lot of potential in North America, especially in the automotive business.

Latvia (Europe) has a very large consumer base. The market in Thailand is very new. In Suzhou, we are focusing on the medical market and don’t need a large plant.

It is not a case of one size fits all.

Q: Is it viable to slightly drop margins to get into a market since a higher volume can get more revenue?

Yes, that is one of our business development strategies. If we are competing in a less complicated product, sometimes we need to be a little more aggressive to get into the market. It depends on how complex the product is. But we don’t want to play a volume game because we need to build up our infrastructure to produce high volumes. When that volume goes away, we have a bigger mess to clean up.


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