Excerpts from analyst's report

KGI Fraser analyst: Renfred Tay

GlobalTestingCorp5.15Global Testing Corp is a semiconductor testing services provider based in Taiwan. Photo: Company.Total cash return of S$0.20 announced. Global Testing Corp (GTC) announced on Friday night that it intends to undertake: 1) a proposed declaration of dividend of S$0.10 per share; and 2) a capital reduction exercise of a further S$0.10 per share to shareholders of the company.

This will bring its total proposed cash payout to shareholders to S$0.20 per share, far above our dividend expectation for 2016 of S$0.097. After this we expect no more payouts in 2016. An EGM will be held to seek shareholders’ approval for these undertakings. Following this round of payout, investors can look forward to the next one in 2017.


Our reasons for expecting more cash return in 2017-18.  We believe this is still a distinct possibility because 

Global Testing Corp
Share price: 
92.5c
Target: 
$1.77

1) latest 1Q16 result shows its cash flows and near term capex requirements continue to be indicative of this.
2) GTC had a long track record in terms of cash returns spanning from share buybacks in the past, to the completion of its capital reduction of S$1.50 per share in 3Q15.
3)The intention of doing its earlier capital reduction was to right-size its balance sheet equity accounts and pave the way for dividend payments. 
4) Yageo Corp (2327 TT) and Chilisin Electronics (2456 TT), which share the same  billionaire executive chairman, Mr. Chen Tie-Min, Pierre and major shareholder, as GTC have done 4 and 2 capital reductions, respectively, since 2013.

♦ "Stock is deeply undervalued"
renfred sunsine"With the stock trading at only FY16F P/CF of 1.8x, P/FCF of 3.4x and EV/EBITDA of 2.7x, we believe the stock is deeply undervalued. Our TP of S$1.77, which is based on 3.5x FY16F P/CF and in-line with its Taiwan peer average, remains unchanged as we maintain our conviction BUY rating on the stock."

-- Renfred Tay (photo)

The return for the two stocks were 207% and 121%, respectively since the start of 2013 without reinvesting dividends. We believe GTC is heading down the same path and this announcement had proved our point.

Still a deeply undervalued company, maintain BUY. Following this proposed payout, we continue to keep our view that dividends (or capital reductions) should keep coming in, and continue to project for dividends going forward. Our payout ratio assumption is raised to 70% (60% previously), which we still think is conservative. Our forward dividend yield expectation rises accordingly to 16-22%. 

(FYI: Global Testing Corp is a component of the Nasi Lemak Portfolio. See: 
)


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