CEI Limited – Steady Growth with Manufacturing Services

CEI Limited (AVV.SI) is a Singapore based contract manufacturer with production sites in Singapore, Indonesia, Vietnam and China. The group provides manufacturing services of printed circuit board (PCBA), box build and equipment. CEI also designs and manufactures its own brand of proprietary equipment for the semiconductor industry. The group was founded in 1980 and is listed on the main board of the Singapore Exchange since March 2000.

CEI serves around 70 customers in Asia-Pacific, in US and in Europe from a diverse range of market segments. These include analytical instruments, equipment, semi-conductor equipment, oil and gas industries and displays for industrial applications. CEI top five customers account for around 52% of the group’s revenues.

With a staff of 616 employees CEI generated revenues of 132m SGD and profits of 11m SGD in 2015, an increase of 9% and 111% respectively compared to the year ago. Despite higher revenues in the first half of this year profits were down 10%. Improvements in productivity and cost saving efforts were not able to offset the foreign exchange losses. The group is vulnerable to a weakening USD as 98% of its sales revenue is denominated mainly in US dollars.

CEI expects the second half of 2016 to be more challenging. Nevertheless the group is worth a closer look. CEI is priced at only 6.7 times its earnings. Total dividends for 2015 have been 10 SGD cents per share which translates into a lush yield of more than 10%. Dividend growth rate has been on average more than 10% in the past five years. This is noteworthy as very few companies in this industry pay a dividend at all. The group shows a healthy balance sheet with total borrowings of 5.5m SGD and cash and cash equivalents of 14.7m SGD. CEI has orders on hand worth 46m SGD, most of which are expected to be fulfilled this year. The executive chairman holds 10% of the group while around 65% of CEI’s shares are free floating.

CEI is relatively small with a market cap of 68m SGD only and is therefore outside the radar of most analysts. The stock is in an uptrend since beginning 2015 and has gained more than 85%. We see room for at least another 20% in the next 6 months.

AIS Rating: ★★★★☆