ALPHA: Engineering Support Firm Projects Strong Growth and Positive Market Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading engineering support services provider, specializing in precision machining for semiconductor clients, is poised for robust future growth following a period of market recovery and strategic expansion initiatives. Despite a challenging year, the company demonstrated resilience and is now forecasting significant earnings growth, prompting a positive investment recommendation from TA SECURITIES.
Performance Review
The firm navigated a challenging environment in the fiscal year ending December 2023, where revenue saw a 22.9% year-on-year decline to RM45.8 million, primarily due to reduced order flows within the precision machining segment amidst a semiconductor market slowdown. However, strategic management of operations, including gross margin expansion, allowed the company to successfully maintain core profit at RM6.8 million, broadly aligning with the previous year’s performance.
The subsequent fiscal year saw a recovery, with revenue growing 3.3% year-on-year to RM47.3 million, driven by a gradual rebound in the global semiconductor industry and increased contributions from precision machining. This recovery, combined with lower tax expenses, boosted core profit by 5.1% year-on-year to RM7.1 million.
Future Outlook and Expansion Plans
The outlook for the company remains optimistic, underpinned by its business expansion plans and a favorable industry environment. According to independent market research, the Malaysian engineering support services market is projected to expand significantly, reaching an estimated RM20.5 billion by 2029 from RM12.5 billion in 2024, exhibiting a Compound Annual Growth Rate (CAGR) of 10.4%.
The company plans to capitalize on this growth through the renovation of its Plant 42A, which will increase manufacturing space and accommodate new machinery, and the construction of a new cleanroom. These initiatives are expected to drive substantial earnings growth, with projections of 1.2%, 15.1%, and 17.9% for fiscal years 2025, 2026, and 2027, respectively. The company expects to reach core profits of RM7.2 million, RM8.3 million, and RM9.8 million in these years. These forecasts are based on key assumptions of revenue growth between 12.0% and 16.0%, and gross margins maintaining between 29.2% and 29.6% over the forecast period.
Investment Recommendation
TA SECURITIES has issued a BUY recommendation for the company, setting a target price of RM0.25, representing a 25.0% upside from the last traded price of RM0.20. The valuation reflects the firm’s strong track record in precision machining, long-standing customer relationships, and an experienced management team.
Key Risks
Despite the positive outlook, the report highlights potential risks, including the non-assured continuity of order books and a dependency on two major customers for revenue.
