Wednesday, February 08, 2017

SAM: Earnings Improved

Result Update

For QE31/12/2016, SAM's net profit was mixed- rose 92% q-o-q but declined 4% y-o-y - to RM15.2 million. Revenue was similarly mixed- rose 9% q-o-q but declined 15% y-o-y - to RM132 million. 

Table 1: SAM's last 16 quarters' P&L

Revenue dropped y-o-y mainly due to the decrease in revenue from the Equipment Manufacturing and Aerospace segments. Revenue from the Equipment Manufacturing segment was lower by RM16.4 million as a result of weaker demand from customers. Revenue from the Aerospace segment decreased by RM9.2 million due to the lower demand for air cargo and business jets. On the other hand, revenue for the Precision Engineering segment increased by RM3.1 million during the quarter.

The Group profit before tax dropped mainly due to lower Group revenue and new projects start-up cost. This was partially mitigated by the favorable change in the product mix in the Equipment Manufacturing segment resulting in higher profit margin and lower expenses in the aerospace segment.

Table 2: SAM's segmental results for QE31/12/2016

Graph 1: SAM's segmental results for last 7 quarters' P&L

With the improved top-line and bottom-line for QE31/12/2016, the graph below shows a hook-up. The Board of Directors anticipates that the longer term future demand for both semiconductor and equipment industries to be still intact as both industries will continue to grow, they will face the short-term uncertainty. And, despite the increased revenue in the Equipment Manufacturing segment this quarter, this segment (plus Precision Engineering business) will remain challenging.

Graph 2: SAM's last 24 quarters' P&L


SAM (closed at RM5.57 yesterday) is now trading at a PER of 16.5x (based on last 4 quarters' EPS of 33.8 sen). At this PER, SAM is deemed fully-valued.  

Technical Outlook

SAM staged a rebound in the past 6 weeks which brought the share price nearly back to its downtrend line. Since then,  SAM has slid back to the support of RM5.50-5.60. If it can hang onto that support, it may trade sideways while it awaits its "huge" aerospace contracts to bear fruits. If it cannot hold onto the support of RM5.50-5.60, then it may revisit the recent low of RM5.00. The amount of aerospace contracts backlog is estimated to be about RM3.5 billion as per its August 2016 Shareholders' Presentation (here).

Chart: SAM's weekly chart as at Jan 6, 2017 (Source: ShareInvestor)

Despite its full valuation and negative technical outlook, I'm maintaining my rating for SAM as a HOLD in view of the "huge"contract backlog.


I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

1 comment:

panaceaasia said...

Thank you Alex.

The two major positives are:

(1) Temasek is the controlling shareholder with a 70% stake.

(2) The aerospace segment is difficult to penetrate. Quality and precision are important qualities. This is a huge barrier to entry enjoyed by aerospace component manufacturers.