Excerpts from analyst's report

KGI Fraser analyst: Renfred Tay

"We have identified opportunities in China‟s rapidly expanding integrated circuit  industry, which is expected to grow in 2016, as the China pushes to expand its market share in the IC design sector." -- GTCBetter than expected results. Revenue for FY15 was down 13% yoy and was spot on with our forecast, while net profit of US$3.7m (+20% yoy) formed 115% of our estimate.

The outperformance in profits came mainly from our more conservative opex margin forecast in general and a net tax benefit of US$0.1m. Cash flows remained strong with operating cash flows of US$17m and free cash flow of US$11m.

Net cash is at US$9.3m (no debt) even after paying out S$53m to shareholders in 3Q15 for its capital reduction exercise. This rate of cash replenishment should not be overlooked by investors.

Dividends at AGM.
 No dividends were declared along with this result announcement but Global Testing Corporation (GTC) has indicated that dividends are likely to be announced for the AGM according to its practice in Taiwan. 

Our view on a likely dividend payout for FY15 is based not only on GTC saying that they were planning to do so, but also on the view that 
1) its cash flows are strong; 
2) its ability to do so and the sustainability of it;
3) track record at returning cash to shareholders (S$53m paid out to shareholders in 3Q15 through its capital reduction exercise and massive share buybacks over the last few years, with treasury shares being cancelled). 

GTC was previously unable to pay dividends due to Taiwanese regulations (negative retained earnings and accounting losses ‐ which were both reversed). These reasons continue to make a strong case to expect dividends.

Outlook remains weak but cash return should trump these concerns
. GTC continues to cite a challenging outlook in the semicon industry. The earthquake in Tainan in February this year has affected some of its customers’ operations and may, impact its revenue in 1H16.

renfred sunsineMaintain BUY. We continue to project for dividends going forward (60% payout ratio) and believe a further capital reduction could come once more cash is amassed. Our TP of S$1.77 falls from S$2 given our lower cash flow projection for FY16F and is pegged at 3.5x FY16F P/CF, in line with its peers. -- Renfred Tay (photo)

However, GTC also highlighted that it has identified opportunities in China, and judged that the sector there should continue to grow.

Given the generally bearish outlook, we are now forecasting revenue for FY16F to fall by 8% (from 0%), and as a result, we are projecting lower profits.

Cash flow projections are lower, but remain strong and continue to indicate sustainable dividends.

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