20171129-辉立证券-Nam_Lee_Pressed_Metal_Industries_Dividend_level_maintained,_yield_intact_7页_416kb

Nam Lee Pressed Metal Industries (NLPM) FY17 Results Summary

Core Content

Nam Lee Pressed Metal Industries (NLPM), a Singapore-based industrial company, reported FY17 results with revenue exceeding expectations by 12%, while PATMI (Profit After Tax and Minority Interest) was slightly lower than estimates by 4.8%. Despite the lower PATMI, the company maintained its dividend level, paying 2.0 cents per share, which is consistent with its ability to sustain dividends due to its strong cash reserves. The outlook for the company remains stable to positive, with management showing increased confidence in the recovery of the US economy and potential domestic infrastructure growth.

Main Points

• Financial Performance:

  • Revenue for FY17 was SGD 141.9 million, up 9.7% YoY, primarily driven by the aluminium segment.
  • Gross profit slightly decreased by 0.6% YoY due to a change in product mix and lower profit margins.
  • PATMI for FY17 was SGD 10.2 million, up 12.1% YoY, attributed to a lower effective tax rate of 18.9% compared to 31.0% in FY16.

• Dividend Policy:

  • Final and special dividends were maintained at 1.0/1.0 cents, with a payout ratio of 47.2%, down from 53.0% in FY16.
  • The company is expected to maintain its dividend policy of paying about a third of earnings, with forecasted dividends of 2.5 cents for FY18e.

• Valuation and Investment Outlook:

  • The stock is currently rated Buy with a target price of SGD 0.56, up from SGD 0.51.
  • The target price reflects an implied forward P/E of 11.1x and P/B of 0.96x for FY18e.
  • The 2.0 cents dividend offers an attractive yield of 5.1% based on the last close price of SGD 0.395.

• Balance Sheet and Liquidity:

  • Net cash (cash less total borrowings) was SGD 40.8 million, representing 42% of market capitalisation.
  • The company has a clean balance sheet, with a strong cash position and limited downside risk.
  • The number of shares increased by 0.31% due to the exercise of employee share options, leading to a dilution of 750,000 shares.

• Key Financial Metrics:

  • Revenue is expected to grow by 8.8% in FY18e and 3.0% in FY19e.
  • Gross profit margin slightly declined to 19.6% in FY17 from 21.6% in FY16.
  • EBIT margin dropped to 6.7% in FY17, mainly due to higher other operating costs.
  • PATMI margin remained stable at 7.2% in FY17, with a slight increase expected in FY18e.

Positive Aspects

• Strong Cash Position: NLPM has a significant cash hoard, with net cash of SGD 40.8 million, indicating financial flexibility.
• Dividend Stability: The company has demonstrated the ability to maintain dividends, offering an attractive yield of 5.1%.
• Positive Outlook: Management is optimistic about the recovery of the US economy and potential domestic infrastructure projects, which could positively impact the aluminium business.
• Valuation Potential: The forward P/E and P/B multiples suggest the stock may be undervalued, supporting the Buy rating.

Negative Aspects

• Increased Liabilities: "Other creditors and accruals" liability rose from SGD 9.07 million to SGD 14.04 million in FY17, due to a one-off provision for a past building project.
• Dilution Risk: The issuance of 750,000 new shares in 4Q led to a small dilution of 0.31% in the share count.

Outlook

• The outlook is stable to positive, with potential for growth in both the US and domestic markets.
• The company is expected to benefit from the recovery in the US economy and the pipeline of infrastructure projects in Singapore.
• Although revenue recognition from infrastructure projects may be delayed, the company's strong cash flow and dividend yield make it an attractive yield-play.

Key Ratios and Metrics

• P/E Ratio: 9.25x (FY17) and 7.83x (FY18e).
• P/B Ratio: 0.71x (FY17) and 0.68x (FY18e).
• Dividend Yield: 5.1% (FY17), expected to rise to 6.3% in FY18e.
• ROE: 7.8% (FY17), increasing to 8.9% in FY18e.
• ROA: 6.5% (FY17), expected to rise to 7.4% in FY18e.

Conclusion

NLPM is a stable industrial company with a strong cash position and consistent dividend payments. Despite a one-off provision that increased liabilities, the company's fundamentals remain robust, and its outlook is positive due to potential US economic recovery and domestic infrastructure projects. The stock is currently rated Buy with a target price of SGD 0.56, making it a compelling investment for income-focused investors.