SINGAPORE (May 25): DBS Group Research has initiated coverage on precision plastic components manufacturer Sunningdale Tech with a &ldquo buy&rdquo recommendation.and a target price of $2.62.

The target price was derived based on 13x FY18F PE, which represents a 35% discount to Sunningdale&rsquo s US peers.

&ldquo Given world class engineering capabilities, global presence and diversification, we believe Sunningdale deserves to trade closer to larger US peers&rsquo 20x FY18F PE and at a premium over local precision plastic peers,&rdquo says DBS lead analyst Ling Lee Keng.

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According to Ling, Sunningdale has a lower customer concentration risk compared to local peers.

The group has a diversified MNC customer base, with the majority of customers each contributing only between 3-5% to group sales.

This &ldquo greatly reduces customer concentration risk commonly seen among small-mid cap peers,&rdquo Ling says in a report on Thursday.

In addition, Ling says Sunningdale offers higher growth compared to the bigger players. The analyst projects that Sunningdale&rsquo s core earnings will grow steadily at 9% CAGR over FY16-18F.

&ldquo Owing to improved plastic material properties, and higher cost efficiency, precision plastic components are increasingly replacing their metallic counterparts in a wide range of industrial applications,&rdquo Ling says.

Ling adds that Sunningdale is well-poised to ride on its track record and strong business fundamentals to take on complex projects and deliver further growth.

Shares of Sunningdale Tech are trading 7 cents higher at $2.02 as at 12.53pm.