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UOB: 3 Stocks With More Than 15% Upside Potential
Aspire, Hot Picks | 01 April 2015
By: Lim Si Jie
Articles (169) Profile

With the STI (Straits Times Index) caught in between the 3,350 (support) and 3,450 (key resistance) levels, the market is still patiently waiting for it to break the 3,450 key resistance level. While the STI is slowly edging towards the 3,450 key resistance level, there are currently some bargain stock picks with at least 15 percent upside ripe for the picking.

1. Amtek Engineering: Interplex Acquisition A Key Factor

With global sales of about US$1 billion, Amtek Engineering is one of the world’s largest precision engineering companies that provides a one-stop end-to-end manufacturing solution. Its large customer base includes MNCs (Multi-National Corporations) like Apple, Dell and Bosch.

Interplex Contribution

In August 2014, Amtek completed the acquisition of Interplex. FY 15 will mark the year where Interplex makes its maiden contribution to Amtek’s earnings. UOB believes that Interplex will likely be buoyed by the “cyclical economic recovery led by the US.”

Key Profit Drivers

Amtek will repay about US$24 million worth of term loan by end FY15, which will reduce interest expense by about US$1 million. With the potential of revenue synergies from cross selling opportunities between Interplex and Amtek client base, revenue (from FY 15 onwards) will see a significant improvement.

Therefore, FY15 will be exceptional given the added contribution from Interplex. Furthermore, Amtek can now leverage on its acquisition of Interplex and greater scale economies for potential cost synergy as well.

RECOMMENDATION: BUY, TP $0.745

2. Ellipsiz: Turnaround For Old Market Darling

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Since the 2009 financial crisis, Ellipsiz has been steadily recovering through the synergistic effect of continued integration exercise. Its gross margins has improved with better revenue mix and incurrence of lower operating expense as a result. With improved profitability from streamlining of operations and organic growth, as well as contribution from newly acquired business from TCL (Tokyo Cathode Laboratory), Ellipsiz continues its steady recovery into FY15.

Attractive Valuation

Excluding a net cash position of $26 million ($0.048/share), Ellipsiz is currently trading at a 4.3x ex cash FY15F PE and a forecasted dividend yield of about 3.9 percent based on a 30 percent payout. On top of that, Ellipsiz remains a potential M&A (Mergers & Acquisitions) target with its position as one of the top suppliers of probe cards manufacturer in the world and its healthy balance sheet. UOB does not rule out the possibility of Ellipsiz making “M&A to drive earnings” as well.

RECOMMENDATION: BUY, TP $0.171

3. ISOTeam: Unique Market Leader Positioning

ISOTeam is Singapore’s R&R (Repair & Redecoration) market leader and has been appointed by SKK Singapore as the latter’s exclusive applicator since 1998, and by Nippon Paint for HDB and Town councils since 2004.. ISOTeam has also been exclusively involved in JTC/HDB Industrial projects and army camps since 2013.

Furthermore, ISOTeam’s lead in the A&A (Addition & Alteration) market has allowed them to be in charge of programs like NRP (Neighbourhood Renewal Program), ELU (Electrical Load Upgrading), HUP (Hawker Centre Upgrading Programme) and EUP (Estate Upgrading Programme).

Positive Industry Outlook

UOB gave the industry a positive outlook rating in view of the growing market size and boost from HDB’s upgrading programmes.

UOB pointed out that “1HFY15 adjusted net profit jumped 91 percent YoY (Year-on-Year)” with 36.8 percent YoY rise in revenue from R&R. Gross profit margin improved from 16.8 to 22.1 percent YoY as well. UOB also observed that 2H of the FY has typically been stronger, forming about 55-65 percent of ISO’s full year profit. In view of ISOTeam’s new acquisitions contributing to its revenue, 2HFY15’s performance is forecasted to improve.

RECOMMENDATION: BUY, TP $0.725

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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