Period     4Q13/FY13

Actual vs. Expectations   The group reported a 4QFY13 net profit (NP) of RM6.3m, bringing its FY13 NP to RM20.0m, which made up 108% of our full year estimate. The positive deviation was due to a better EBIT margin on the back of better cost controls and higher other operating income.

Dividends    Below expectation. No dividend was declared during the financial year under review while we are projecting a gross DPS of 7.7sen.

Key Result Highlights     YoY,  SAM’s FY13 revenue dropped by 27.8% to RM383.4m despite the new sales recognition in the Aerospace segment following the acquisition of Avitron Private Limited at the end of 2Q13. The main culprit was the prolonged lacklustre demand in its equipment manufacturing segment and precision engineering segment (-43.8%) coupled with the high base effect in FY12 (mainly boosted by higher sales of the HDD test equipment and the production ramp-up post the Thai flood). The EBIT margin, however, improved to 6.0% (FY12: 3.8%) as a result of better cost controls and higher other operating income. This led the group to record a higher NP of RM20.0m (+12.0%).

QoQ, SAM’s 4Q13 revenue grew by 7.0% as lower sales from the Precision Engineering segment (-16.5%) and the Equipment Manufacturing segment (-8.6%), which were dragged by the weaker sales of HDD test equipment, were cushioned by the robust sales growth in the Aerospace segment (+16.8%) following the pull in sales from a customer. At the PBT level, the group’s PBT margin remained relatively unchanged at 4.8% (3Q13: 4.9%). Notably, the group’s 4Q13 NP margin has increased by 2.1ppts to 5.8% (from 3.7%) on the back of deferred taxation of RM1.9m.

Outlook    Although the sluggish HDD segment is still putting a drag to the group’s earnings prospect, we believe its resilient aerospace segment could cushion the impact.

Change to Forecasts     Our FY14E net profit has been raised by a slight 2% as we fine-tuned our earnings model.

Rating    Maintain MARKET PERFORM 

Valuation     Our TP has been lowered to RM2.28 (from RM2.54 previously) as we have switched our SOP valuation methodology to a PER valuation. Our SOP valuation is no longer valid following the business structural reorganisation in the group.

Our new TP of RM2.28 is based on a targeted FYE14 PER of 14.0x. (representing a +0.5SD level above the 1-year forward PER mean).

Risks    Fluctuation in foreign currencies and the cyclical nature in parts of its businesses.

Source: Kenanga