+ Margins stable. PBT margin was stable YoY at 11.4% despite lower revenue. The was likely due to a higher mix of products in life science & genomics, medical devices and healthcare & wellness. There was strong demand for essential healthcare products such as ventilators and PCR equipment.
+ Revenue weaker than our expected +12% YoY rise. We had expected a spillover of revenue from 2Q20 when factories were closed because of lockdown. It seems orders in 3Q20 were softer than expected, likely due to macro headwinds.
VMS guided that 2H20 will be stronger than 1H20. This is to be expected since 1H20 earnings collapsed 28% YoY. Moving into 2021, we anticipate a recovery led by new products that VMS mentioned would be released by customers. These will likely be in the healthcare sector, including Covid-19 related detection, testing and diagnostic products. Another driver of growth could be an improvement in macro conditions.
Maintain NEUTRAL with higher TP of S$18.60, from S$18.40
We cut FY20e/FY21e PATMI by 12%/10% to S$293mn/S$338mn following lower-than-expected sales. Recovery is slower than expected but net cash of S$829mn, yields of 4% and ROEs of 13% are expected to provide share-price support.