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Author: csan   |   Latest post: Fri, 24 Sep 2021, 10:10 AM

 

THE MOST UNDERVALUED TECH STOCK ON BURSA MALAYSIA NOW (UPDATED)

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Semiconductor stocks have experienced a boom in profit and share price in the last year because demand for products have been extremely robust. Yesterday, this stock reported its 3Q21 results which was the best in its history and which made the valuations of this stock extremely undervalued compared to its peers.

The company is Visdynamics.

Visdynamics is an automated test equipment (ATE) manufacturer. They produce machines used by large semiconductor companies. Their main competitors and closest peers are Vitrox, MMSV, Elsoft and Aemulus. 

Yesterday, Visdynamics reported their best ever quarterly profit in spite of the Full MCO which started in June 2021. Here is a screenshot of their historical performance:

 

However, upon closer inspection of their quarterly results report, you will find that Visdynamic's core profit is much higher than what they reported. Core profit excludes exceptional items like provisions, impairments and exceptional and unrealised gains. In other words, this is the profit that is expected to be recurring. For example, if a company reports a profit of RM10 million but also incurred a loss on disposal of RM3 million, the core profit will be RM13 million since the loss on disposal is not recurring. 

Here is a screenshot of the exceptional losses and gains Visdynamic's reported yesterday:

 

The addition of provision & accruals and unrealised gain should be excluded to count their core profit. Without these items, Visdynamics actually reported a core net profit of RM4.929 million (3.966 - 0.504 + 1.467).

Many people are also not aware that Visdynamics bought a piece of land at the end of last year to expand their business and construction of the factory has already started. Here is a screenshot of Visdynamic's reply to Bursa on the land acquisition:

 

Here is a screenshot of what they said in their prospects section of their quarterly results report:

 

 

How to value Visdynamics?

It is simple. The closest comparable is Vitrox. If we annualise Vitrox's latest quarterly profit of RM51 million and use their current market capitalisation of RM9.5 billion, Vitrox is trading at a PE of 46.5x! Their other peers MMSV, Elsoft and Aemulus are trading at PE multiples of 25x, 81x and 62x respectively! If we were to annualise Visdynamics's latest quarter's core net profit of RM4.9 million, their annual core profit would be RM19.6 million. At 46.5x PE, Visdynamics would be valued at a market cap of RM911.4 million or RM5.22 per share! Let's forget about 46.5x and just use 25x. It will still be worth RM2.81 at 25x PE. 

With a reported net profit of RM11.5 million reported in the last 4 quarters combined and with the new factory expected to start operating soon, Visdynamics is very likely to qualify for a Main Board transfer. To transfer to the Main Board, a company needs to report a minimum profit of RM20 million in 12 quarters combined.

Visdynamics has now limit up but I would not be surprised if there is a double limit up (limit up today and next Monday) since the gap in valuations between Visdynamics and Vitrox is extreme. It is a matter of time before this gap narrows and the share price of Visdynamics reflects this. 

 

UPDATE: VIS is RM1.60 now. That means the stock has gone up by 51% over 2 days. There is a high likelihood of correction when this happens. For those asking, I would recommend taking some (not all) profit. Besides, we could see a market meltdown this week because Evergrande would be missing their second bond coupon payment and US Treasury yields have been rising a lot and this would affect the high-multiple tech sector in particular.

 

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