Amtek Engineering buffeted by both revenue and cost pressures

It plans to cope with aggressive automation.

Here's more from Maybank Kim Eng:

On the ropes. Mechanical contract manufacturer Amtek has seen its share price underperform this year due to its exposure to industries threatened by the economic slowdown in Europe and China, as well as structural shift from PCs to smart phone devices. Rising wage costs in Asia are also a major headache. Still mired in these challenges, it is trying to overcome them through automation measures. For now, we would keep clear of the stock till we see revenue growth return and margins improve.

The end of PCs. With the shift from PCs to smartphones and tablets, PC giants such as HP and Dell are not in a strong position to compete anymore. It was recently reported that Chinese PC maker Lenovo has overtaken HP as the world’s largest PC company. Although HP’s latest CEO Meg Whitmore has decided not to sell the ailing PC division, she also warned that there is no quick fix for HP’s growth problems. Dell
also forecasted worse-than-expected revenue outlook.

Trying hard to adapt. As a result, Amtek’s casing and enclosure customers are trying to cope with the PC business downturn by expanding into data storage and servers for corporate customers. While these new businesses are growing, they are not yet growing fast enough to offset the decline elsewhere. Other than revenue challenges,Amtek has also been facing cost challenges as minimum wages rise in Malaysia, China, Indonesia and Vietnam, its main production bases.

Automate, automate, automate. To counter these pressures, Amtek has, in the past 1-2 years, been rolling out highly automated production lines in its largest factories, starting with Suzhou. In 2012, It will be adding 10 more automated robotic lines in Suzhou, to be followed by two more plants in Shanghai and Huizhou next year. According to management, margin gains from automation are expected to start rolling through by the second half of FY13.

Not yet at tipping point. We have cut our FY13 forecast by 20% but cashflow should remain manageable. We believe management is still committed to paying at least half of after-tax earnings in dividends. The >6% yield should limit downside to the share price, but for now, we see
little to no catalysts, at least until 2H 2013. Our HOLD call stays until we see revenue growth return and margins improve.

Reaching the people who run Asia's businesses is harder than it used to be.

Inboxes are crowded. Attention is short. The executives you most want to reach — the founders, CFOs, and operators who actually move budgets — are the hardest to find through the usual channels. If you're building a company, a category, or a reputation, you already know this.

We've spent twenty years building the room they read. Singapore Business Review is where senior decision makers in Singapore and across Southeast Asia come for business coverage they can't get elsewhere — in print, online, and in person at the summits and roundtables we host across seven markets.

If you have something these readers should know about — a point of view worth publishing, a product worth their attention, an event worth their time — we'd like to hear what you're trying to do.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia