SINGAPORE - Activist fund Quarz Capital Management has found a new target in mainboard-listed high-precision plastic components maker Sunningdale Tech.
In an open letter to the board on Thursday (Dec 13), Quarz urged Sunningdale to return more cash to shareholders, by distributing at least 60 per cent of core net income in 2019 as dividends.
If a dividend of 10 cents a share is dished out next year (up from a total dividend of 8 cents per share expected for 2018), that works out to an expected yield of 7 per cent, based on the closing share price of $1.40 on Wednesday.
Sunningdale does not have a formal dividend policy. Last year, it reported core earnings of $42 million, and Quarz's estimates are based on a core net income of $31 million in 2019.
"We believe that the retained cashflow is more than sufficient to expedite on organic and inorganic growth strategies," Quarz wrote. Sunningdale can afford to pay a higher dividend next year since 2018 should mark the end of its "heavy capex phase", Quarz added.
Sunningdale has invested more than $130 million in cutting edge technology, equipment and new factories since 2014, Quarz said.
Quarz has a less than 5 per cent stake in Sunningale, but said that combined with its affiliates, it has built up a "sizeable position" in the company.
The activist is also proposing that Sunningdale distribute at least 50 per cent of the proceeds from the disposal of its Zhongshan factory to shareholders. Suningdale announced on Tuesday that it had agreed to sell a factory and some land in China for 145 million yuan (S$28.9 million).
The recommendations come after Sunningdale's shares have fallen by 19 per cent after its earnings miss in April.
Quarz said it believes that Sunningdale is trading at a 30 per cent discount to its tangible book value of $2.01, and represents an opportunity owing to its diversified base of multinational clients including HP, Verifone, Gemalto, Samsung, Phillips, Epson, Microsoft, Hitachi and Casio.
Quarz is also expecting the group to deliver stronger revenue growth next year due to the ramp up of new products and margin expansion.
Sunningdale shares closed three cents higher at $1.40 on Wednesday.
Among Sunningdale's substantial shareholders are non-executive chairman Koh Boon Hwee, who owns a 15.8 per cent stake, and "Popiah King" Sam Goi, who has an 8.1 per cent stake. Yarwood Engineering & Trading, a subsidiary of alcoholic beverage distributor Kong Siang Group, also has an 8.1 per cent stake.