April was the 20th straight month that the manufacturing sector in Singapore experienced growth. The electronics sub-sector was into its 21st consecutive month of growth. Moreover, the outlook for the industry continues to look promising as analysts predict a 6.3% growth over the second quarter of the year and a 4.5% full-year growth. As such, it might be useful for investors to include some exposure to manufacturing firms in their investment portfolio. With that in mind, here are three manufacturing stocks that could benefit from the strong economic tailwinds in the near future. AEM Holdings Ltd (SGX:A10) produces systems, components and…
April was the 20th straight month that the manufacturing sector in Singapore experienced growth. The electronics sub-sector was into its 21st consecutive month of growth. Moreover, the outlook for the industry continues to look promising as analysts predict a 6.3% growth over the second quarter of the year and a 4.5% full-year growth.
As such, it might be useful for investors to include some exposure to manufacturing firms in their investment portfolio. With that in mind, here are three manufacturing stocks that could benefit from the strong economic tailwinds in the near future.
AEM Holdings Ltd (SGX:A10) produces systems, components and test handlers for the manufacturing of semi-conductors, solar cells and smartcards. The company had a remarkable 2017, with a 215% increase in revenue and an even more impressive 521% surge in earnings per share.
The substantial increase in its business volume was largely due to the company’s co-development of a superior test handler platform with a large chipmaker in the world. The test handler enables semi-conductor manufacturers faster throughput and lower cost of testing. Based on its future order book, AEM has guided for S$42 million in operating profit for 2018, which is another 33.3% improvement from its already strong 2017 performance.
In addition to its strong growth prospects, based on its latest share price of S$1.34 per share, the company trades at a very reasonable annualised price-to-earnings ratio of 11.1 and has a dividend yield of 2.1%.
Valuetronics Holdings Limited (SGX: BN2) is a Hong Kong-based company that specialises in providing integrated electronics manufacturing services. It operates in two main business segments, namely, consumer electronics and commercial electronics. The company has had a consistent record of growing its revenue and earnings over the last five years.
The table below shows some of the key numbers from its income statement over the past five financial years:
Source: S&P Global Market Intelligence
As you can see, Valuetronics has reported growth in every aspect of its business over the period in study. Although revenue only inched up marginally over this period, the company’s net profit and gross profit have both increased at commendable rates.
Furthermore, the company’s outlook for the near future remains firmly positive. The company’s management expects its smart lighting business to return to growth later this year and is also expecting double-digit revenue growth in its auto customers and printed circuit board assembly business.
As at the time of writing, shares in Valuetronics exchanged hands at S$0.775 apiece. This translates to a price-to-earnings multiple of 9.7 times and a dividend yield of 4.8%.
UMS Holdings Limited (SGX: 558), like Valuetronics, provides equipment manufacturing and engineering services to manufacturers. The company derives most of its revenue from its semi-conductor manufacturing services segment.
As with the other manufacturing companies in Singapore, UMS had a great 2017, turning in a 55% jump in revenue and more than doubling its earnings per share.
Despite a slight contraction in its turnover in the first quarter of 2018, the company managed to increase its profit attributable to shareholders due to higher gross margins and lower tax expense. Moreover, the company has managed to keep its earnings consistent in spite of the cyclical nature of the semi-conductor business. This has been achieved through its strategic decade-long partnership with the American manufacturer, Applied Materials. As such, its earnings per share each year has been less volatile than some of its peers.
The company also has a robust balance sheet with a net cash position of S$20.6 million and a healthy gearing ratio of just 7%.
Right now at S$0.885 per share, the company trades at a discount to its peers. It has a price-to-earnings ratio of 9.2 and an attractive dividend yield of 5.4%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on AEM Holdings Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in AEM Holdings Ltd.