Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Fri, 17 Jan 2020, 8:43 AM


MTAG - Initiation: MTAG-ing on the Next Growth Wave

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Initiation: MTAG-ing on the Next Growth Wave

We initiate coverage on MTAG with a BUY call and TP of RM0.75 based on a 13x FY21E PER. We like MTAG for its: i) position as a key label & sticker-printing supplier, and mesh-material converter for a global renowned household-appliance brand, ii) strong barrier to entry via its technical expertise in niche printing and converting industry for the E&E industry in the last 23 years, iii) solid earnings growth – CAGR of 13% for FY19-22E, led by a targeted doubling of its existing capacity in the next 3 years, iv) less labour-intensive nature of its business, and v) attractive valuation of 10x FY21E PER and above average ROE of 22%.

Riding on the Growth of Its Indirect Key Customer

MTAG is a key supplier of labels & stickers and converter of mesh materials for its indirect key customer – a global renowned household appliances brand. It fulfils an estimated 60-70% share of the latter’s requirements globally. Approximately 80% of MTAG’s revenue is contributed by the EMS companies, namely ATA IMS (BUY, TP: RM2.00), V.S. Industry (BUY, TP: RM1.60) and SKP Resources (Not rated, RM1.23), which serve this indirect key customer.

Capacity Expansion Likely to Drive Future Growth

MTAG plans to construct a new integrated manufacturing plant and purchase new machineries to double its capacity gradually over the next 3 years. This will enable the group to cater to the growing demand of its existing customers, capture a larger share of the industry and improve efficiencies. We expect MTAG’s growth to be supported by its indirect key customer’s new product introductions and application of higher-end materials, riding on the latter’s ambitious plans, aggressive R&D roadmap, innovation and growth prospects.

Initiate Coverage With a BUY Rating and TP of RM0.75

We initiate coverage with a BUY rating and 12-month TP of RM0.75, based on 13x FY21E PER, which is at a c.20% discount to the target PER we apply to EMS players under our coverage universe. Currently trading at only 10x FY21E PER, we believe valuation looks appealing given its solid fundamentals, relatively high margin vs. its peers, low labor intensity requirements and high stock liquidity.

Source: Affin Hwang Research - 4 Dec 2019

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