CDW

CDW: KGI initiated on CDW, a Japanese manufacturer of LCD backlight units to a major Japanese LCD manufacturer, with production facilities based in China. The company has previously focused its backlight units production on gamesets, but is now positioned for a switchover to smartphones.

House cited a strong comeback in FY15, following its transitory disappointment last year.

CDW’s USD dividends should also be a major boon for investors, given the expected USD appreciation against SGD. Dividend pay-out has also been increasing since FY09 from 0.5 UScts to 1.2 UScts in FY12 and FY13. CDW has a minimum pay-out ratio of 40% of net profit and tries to at least match the same pay-out as the previous year.

Although KGI expects a weak set of results for FY14, house believes the company will be able to maintain its 1.2 UScts pay out (8+% yield), given its large net cash position, and strong cash flows.

CDW is currently trading at 7.2x FY15F P/E, still very attractive given 1) Its impending turnaround with a 47% growth in core net profit in FY15F, 2) its strong balance sheet and cash flows 3) its high dividend yield that is likely to be maintained, 4) dividends paid in USD (USD appreciation vs. SGD since 2012) and 5) net cash of approx. S$0.13 per share vs. share price of S$0.196.

KGI believes a re-rating of the stock is on the cards as more discover this hidden gem. TP for CDW is set at $0.25 based on 9x FY15F P/E.