driven by successful penetration into the defense sector and ahead of
the launch of a revolutionary smartphone that a new customer is
bringing to market soon.
Point: Based on shipments booked year to date and accelerating
contract flow, we estimate HLN can pull in all of last year’s profit with
just six months of contributions from these two new business lines.
More importantly, outlook for the next few years is promising, with
growth supported by 1) huge business potential of new customers -
notable MNC leaders in their fields and 2) great cross-selling
opportunities and synergies between the three business units.
Relevance: Despite the stock rally in the past few weeks, there’s
still 30% upside to our target price of S$1.21 based on 12x FY08
earnings. We believe short-term share price catalyst will be contract
announcements confirming market’s expectations and possibly,
earnings upgrade. Initiate coverage with a Buy recommendation.
A banner year. HLN Technologies manufactures metallic, elastomeric (i.e.
rubber) and polymeric (such as paper, felt, foam, cork, film or none-woven
material etc) components for office automation equipment, consumer
electronics and defense vehicles. It is primed for strong top and bottomline
growth this year.
Record growth from defense and consumer electronics. We project 97%
overall net profit CAGR in 2006-2008, driven by accelerating contracts from
military vehicles and machined weaponry customers. Near term, orders from
ThyssenKrupp could easily double. We are very positive on future potential
given rising defense spending globally and ongoing replacement and
upgrading of old military vehicles. In addition, HLN is well poised to grow its
market share for components used in a new smartphone as customer is
approving the company’s proprietary chemical formulations and have
deployed that in a couple of key components.
Initiate coverage with Buy. Despite recent rally, HLN’s valuations of 9.2X FY08
earnings are still lower than sector average of 12x PER although HLN’s growth
momentum is much stronger than peers in the metal stamping or polymeric
industry. Our target valuation multiple of 12x earnings translates to a PEG
ratio of only 0.14 against HLN’s EPS CAGR of 87% over FY06-FY08F.
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