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Broker's take: Headphones, car production sustain UOB's 'buy' call on Memtech

UOB Kay Hian has maintained its "buy" call on electronics manufacturer Memtech on the back of booming electronics demand, with a target price (TP) of S$1.33 on an upside of 27.3 per cent, up from the previous TP of S$1.18.

The stock has seen a 52-week high of S$1.055 and low of S$0.570.

Catalysts for the share price include a potential privatisation, expansion into new precision engineering segments and even potential dividend surprises, UOB's research note said.

The electrifying surge in Tesla's Model 3 production is expected to benefit Memtech "tremendously", said UOB, as the electric vehicle (EV) manufacturer enters the mass market segment and ramps up production of its most affordable model yet.

The demand for the Model 3 is expected to exceed 700,000 units per year, says UOB.

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Memtech is responsible for "functional plastic components related to Tesla's core batteries" and was already Tesla's eighth-largest supplier before H2 2017.

The burgeoning EV market in China - where the company has three manufacturing facilities - looks set to accelerate demand for downstream suppliers such as Memtech, says UOB.

In consumer electronics, Memtech is expected to benefit from the rising demand in wireless headphones, boosted by being a supplier to the popular Beats headphones brand, owned by Apple.

Research company Gartner forecasts wireless headphone sales of 206 million in 2021, up from 150 million in 2017.

UOB highlights Memtech lagging behind competitors such as Hi-P International and Sunningdale Tech, both forecast to post stronger H2 2017 results than Memtech, but it remains confident of the company's prospects.

UOB pegs Memtech's valuation to its peers' average 2018 PE (price earnings) of 11.6 times, up from 10.3 times previously.

The counter was trading at S$1.07 as at 10.18am, up 3.35 per cent.

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