We highlight the key points from Avi-Tech’s ($0.425, unchanged) just released annual report (Avi-Tech is one of our key Technology/ Manufacturing pick):
The business environment in the financial year ended 30 June 2020 (“FY2020”) was extremely challenging due to the escalating trade war between China and the US which disrupted global supply chains and impacted trade flows in the automotive, electronics, telecommunications and networking industries.
The situation was further exacerbated by the COVID-19 pandemic in the second half of FY2020.
Notwithstanding these trying circumstances, Avi-Tech was able to navigate steadily with an unwavering focus on enhancing our core competencies and stringently managing costs to turn in a creditable performance in FY2020.
The strong foundation that we built over the years has enabled us to continue to expand our capabilities, upgrade our technologies and upskill our people to better serve customer needs.
The Group’s financial strength has also allowed us to tap opportunities to invest in future growth industries while still continuing to provide immediate returns to shareholders in the form of dividends.
The Group registered net profit growth of 28.5% to $6.0 million in FY2020 and notably, we also improved our gross profit margin to 35.7% (FY2019: 31.4%) through productivity enhancements and tighter cost control, coupled with reduced weighted products’ cost.
As at 30 June 2020, the Group’s total assets were $59.2 million against total liabilities of $7.9 million, and the net asset value per share was 29.95 cents (FY2019: 28.97 cents). Cash flow wise, the Group generated net cash from operating activities of $9.7 million in FY2020 (FY2019: $6.1 million), resulting in a healthy cash position of $38.3 million.
Taking into account the Group’s profitability, strong balance sheet and net positive operating cash flow, the Board is proposing a final dividend of 1.0 cent per ordinary share and a special dividend of 0.5 cents per ordinary share.
Including the interim dividend of 1.0 cent per ordinary share, the dividend yield is 6.0% and the dividend payout ratio is 71.6% of FY2020 net profit.
The current situation has presented unprecedented challenges which impact almost every industry, ours being no exception.
While we cannot control the external economic factors, we can steer and manage the internal dynamics of our operations.
Hence, in the immediate future, our focus will continue to be on enhancing our core service offerings, further increasing productivity and improving efficiencies, investing in our workforce and intensifying digitalisation and automation, while instilling discipline in cost management and prudence in expenditure.
Recognising the accelerated push towards digitalisation caused by the COVID-19 pandemic and the fast-growing importance of artificial intelligence, we made a strategic investment of $500,000 in robotics software solutions for deployment in a wide range of industrial and commercial applications.
For the automotive semiconductor segment, while the outlook remains uncertain, the projected intensifying demand for data centres, servers, digital infrastructure and cloud services may provide opportunities.
Looking at the totality of factors, the Group is maintaining a cautious outlook for FY2021.
Over the longer term, the prospects for the sector remained bright given the push from 5G technology and the automotive sector.
These prospects are further strengthened considering advancements in artificial intelligence, robotics and other frontier technological research and development, which may benefit our business segments.
But with net cash of $38.3 million, the ex-cash PE would be only 5.3x (market cap is $73 million).
With an attractive yield of 6.0% (payout ratio of 71.6%), we maintain BUY (TP of 51 cents).