Memtech could see increased earnings from new clients

China-based handset keypad manufacturer Memtech International have made news recently by announcing that it is targeting new multinational clients like Motorola, Siemens and HTC. Memtech's main customers currently are Lenovo and Bird, 2 large Chinese mobile phone manufacturers and analysts are banking that the move to attract these large clients would help in growth of earnings. For the year 2005, Memtech announced a drop in net profits from US$14.8 million to US$10.4 million. This is mainly due to the drop in market share experienced by Lenovo and Bird as well as increased cost of raw materials due to the rise in oil prices. The company is expecting its new clients to gradually form up to 20% of its revenue base. With the company giving out good dividends of 1.0 cents per share, the yield for its share is modest.

However, upside to the stock is expected after JP Morgan and Merrill Lynch both covered the stock in its analyst reports. JP Morgan states that with Memtech's earnings expectations for FY06, its share is presently trading at 9.7 times of FY06 earnings, which is high compared to more established Taiwanese keypad makers. Upside could still be maintained as it is still trading below its IPO price of S$0.55 and the current take up of China stocks.