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Amtek Engineering Posts Higher Earnings

Amtek Engineering Limited. (SGX: M1P) released its 1QFY2014 results on Friday evening after the markets closed. Before taking a look at the results, let’s understand a little bit more about the company and its operations.

Established in 1970, Amtek is a leading global manufacturer of precision engineered components with strong product design, tooling and assembly capabilities. It has a global presence with 20 manufacturing facilities spread out across 8 countries.

Amtek also has a globally diversified customer base consisting of over 100 companies spread across a wide range of industry sectors. Some of their customers include major multinational companies such as Canon, Dell, Hitachi, Juniper, Konica Minolta, Philips and Sony.

Basic Figures

For the first quarter ended 30 September 2013, Amtek registered a 4% increase in revenue from US$162.3 million to US$169.6 million as compared to last year. The small increase in revenue was spread out across 7 industry segments; with Networking and Enterprise Server Enclosures and Automotive product sectors growing 12% and 7% respectively in 1QFY14, primarily due to newly launched programmes.

In contrast, 1QFY2014 net profits surged 20% to US$7.719 million over that of the same corresponding quarter last financial year. This was largely attributed to higher capacity utilisation resulting in proportionately lower cost of goods sold. In addition, the increasing wage expenses were offset by the implementation of various automation and operation initiatives in prior years. Thus, general and administrative expenses stayed relatively flat in 1QFY14 as compared to 1QFY13.

The better performing quarter also led to an increase in repayment of loan and borrowings from US$0.92 million to US$13.6 million. In addition to the paring down of debt, the Group received proceeds from disposal of property, plant and equipment of US$10.8 million which were redeployed towards increase in capital expenditure of US$18.0 million from only US$5.55 million in the corresponding quarter last year.

Outlook

Consistent hiking of wage costs have been a concern across the manufacturing industry and this is the same for other players such as Micro Mechanics (SGX: 5DD) and World Precision Machinery (SGX: B49). Conversely, Amtek is able to keep its wage expenses under control by reaping the benefits of its operations and automation initiatives.

Even though market conditions are showing signs of stabilizing, certain industry sectors, in particular those relating to the IT/enterprise server, electronics/home entertainment and hard-disk drive industries continue to face head winds.

Thus, Amtek’s gains are also capped despite some of the measures Amtek has made in securing new customers and programme launches. Nevertheless, the Group will continue to address medium-term opportunities and remain focused on its operations and automation initiatives going forward.

Valuation

Shares of Amtek Engineering closed down 3.23% at S$0.45 on Friday close. At that price, the shares are valued at 7.367 times earnings and carry a dividend yield of 7.33%. Its Net Assets Value (NAV) per share currently stands at US$0.33 cents, up a paltry US$0.01 cents from last year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.