KUALA LUMPUR (May 6): Maybank Investment Bank (Maybank IB) on Monday began coverage of SAM Engineering & Equipment (M) Bhd with a counter-consensus ‘buy’ call, betting on the cyclical recovery of the aerospace and semiconductor sectors.

Earnings at SAM Engineering, a contract manufacturer that makes aircraft parts and electronic components, will likely grow 20% on average annually over three years, according to Maybank IB. The company’s aerospace end-clients, Airbus and Boeing, have record-high backlog orders, it noted.

SAM Engineering also has exposure to both front- and back-end customers in the semiconductor space, and “should therefore recover ahead of most of its other domestic peers”, Maybank IB said. The research house has a target price of RM6.05 for a potential 26% gain within 12 months.

Shares of Sam Engineering have surged 32% so far this year, outperforming its industrial sector’s gain and the country’s benchmark index FBM KLCI, thanks to a surge in quarterly profits. The stock has also attracted the attention of the Employees Provident Fund (EPF).

In April, the EPF bought one block of 45.09 million shares, equivalent to a 6.7% stake, at an undisclosed value, making the pension fund the largest shareholder in SAM Engineering after Singapore's sovereign wealth fund Temasek Holdings Pte Ltd.

Hong Leong Investment Bank and CGS International, the only other two research houses covering SAM Engineering, have ‘hold’ calls on the stock.

Sam Engineering, which derives 23% of its revenue from the aerospace sector, is also expected to consolidate the results of newly acquired Aviatron Sdn Bhd from February onwards, Maybank IB said. Aviatron mainly produces engine nacelle beams for Boeing and Airbus aircraft.

The commissioning of its Rojana Plant 2 and Ban Bueng Plant 1 for its equipment segment — which provides services including precision machining and sheet metal fabrication — could generate revenue of about RM800 million annually, according to Maybank IB’s estimates.

“We believe that Sam Engineering is well positioned in the right space and will go through a multi-year growth cycle” over the next three to five years, the research house added.

Net profit surged 53% in the third quarter ended Dec 31, 2023 to RM29.32 million from RM19.19 million over the same period a year earlier, according to the latest available results. The company will have until the end of May to announce its fourth quarter and full-year results.