Memtech downgraded by UOB KayHian amid US-China trade war overhang

Singapore five-dollar note Photo by Leslie Shaffer

UOB KayHian downgraded Memtech International to Hold from Buy, pointing to the doubling of its share price over the past year and to an overhang from a potential trade war.

“We continue to like Memtech for its strong balance sheet, willingness to pay generous dividends, strong exposure to the high-barrier automobile precision engineering segment, and strong growth from both the automobile and consumer electronics segments due to its ability to attract new blue-chip customers,” it said. “However, at current prices, we believe the company is fairly valued. Trade war fears remain, which may continue to be an overhang on the stock.”

It noted that components-provider Memtech has three manufacturing sites in China, but added that until potential tariffs on Chinese exports to the U.S. are finalized, it was premature to quantify the impact on the company.

But UOB KayHian said it didn’t expect the direct impact of the potential tariffs would be significant because most of its raw materials, such as plastic resin, were sourced locally in China, the company doesn’t export moulds to the U.S. and most of its products are sent to contract manufacturers in China and South America.

It noted, however, the one exception was its customer Tesla, for which it ships to the U.S., but it estimated Tesla accounted for only around 3 percent of Memtech’s sales.

It kept its target price at S$1.50, pegged to peers’ average 2018 price-to-earnings of 12.0 times. It tipped an entry price of S$1.35.

The stock ended Friday down 4.43 percent at S$1.51.