DBSVickers Report - 20 Nov 2007

ElectroTech Neglected deep value play

Story: Management recently held an update following the release of their 3Q results. They shed more light on operations in 3Q07 as well as near-term earnings outlook.

Point: Some near-term pricing pressures are expected for the Mechatronics division owing to the weakening US dollar affecting customers’ margins. However, the launch of mass commercial production in key office automation and automotive projects over the next 2-3 years should boost revenues and stabilise margins, going forward.

Relevance: The stock offers deep value at current levels. Stripping out cash of 13 cents per share, the stock is trading at a modest PE of 4.5x FY07 earnings. Dividend yield is also a healthy 5%, underscoring the cash generative nature of the business. We maintain our BUY recommendation on the stock at a revised target price of S$0.58, based on 6x FY08 earnings.