Amtek Engineering's net profit disappoints analyst

Sales declined 4% to US$155.2m.

According to CIMB, Amtek Engineering's 2QFY13 core net profit was about 4% below its forecast, and formed about 21% of consensus and 23% of its full-year estimate. With largely in-line results, CIMB leaves its FY13-15 forecasts and 1.4x P/BV target (still based on the industry average) unchanged. 

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Sales remained flat yoy but declined 4% qoq to US$155.2m as Amtek faced a mixed bag for its revenue segments vs. a year ago. Most notably though was the stellar growth of tooling sales (reported under “others”), which leapt 22% yoy.

Strong tooling sales indicate that the pace of future component sales should also pick up. 

This revenue segment was driven by a wide spectrum of customers, with sales concentrated on casing and enclosures (C&E) for network/server, office automation and automotive products. New projects slated to commence in FY14 include C&E for servers for a major PC OEM, cold forged base plates for 5mm drives and casing for lithium batteries.

Its gross margin fell 0.7% pt qoq to 15.3% as a result of higher sales of tooling products which are sold at cost. Cashflow remains steady, with dividendyields still decent.

Combating rising costs. Amtek has been active in combating rising wage pressures by embracing more automation and shifting its Singapore operations to Batam. Despite an increase in minimum wages there, labour costs are still a fraction of Singapore’s. 

Macro environment still a concern; Amtek optimistic. The business environment for Amtek’s European customers is still weak. However, Amtek remains optimistic as it expects to continue gaining market share at the expense of weaker competitors.