Investment Highlights

• We value Oppstar at a fair value (FV) of RM1.20/share based on a FY24F PE of 30x which is on par to the simple average PE of regional peers. We ascribe a 3-star ESG rating to Oppstar.

• Oppstar is a home-grown technology company, involved in the designing of integrated circuits (IC), covering front and back-end processes. The company also provides turnkey solutions, postsilicon validation services, training and consultancy services.

• Industry prospects are positive. According to the Taiwan Semiconductor Industry Association, global IC design sales grew at a 6-year CAGR of 8.8% from NTD3.4tril (RM433.4bil) in 2016 to NTD5.6tril (RM827.1bil) in 2022. Hence, we are expect the demand for IC design services to be robust and benefit Oppstar.

• We believe that Oppstar is positioned to win more jobs due to its proven track record, large capacity and extensive experience in various IC projects.

• Moreover, China has been compelled to develop its own semiconductor capabilities and manufacture chips such as CPU microprocessors from scratch. Given its track record in China, this presents an enormous growth opportunity for Oppstar to provide its turnkey design services that encompass both frontend and back-end processes. Some of the group’s customers include Xiamen KirinCore from China.

• In FY22, China accounted for 78% of the group’s revenue. To mitigate the high concentration risk in China, Oppstar plans to diversify to India, Singapore and Taiwan. The group is expanding its design engineering team headcount by 2.6x from 193 to 500 in the next three years to help them cope with the expected surge in the order book.

• With the ongoing US-China geographical tension, we expect China based companies to outsource IC designs to Malaysia due to the country’s completeness of the semiconductor’s ecosystem. This will support the group’s revenue growth.

• We opine that the group’s gross profit margin would hover between 52% and 55% in the coming 3 years. The group’s gross profit margins are envisaged to be supported by high-value contracts such as those in the turnkey segment.

• As such, we estimate the group’s earnings to climb at a CAGR of 28% from FY23F to FY25F.

• Oppstar will have a net cash pile of RM12.7mil (3% of IPO market cap) post IPO. Given its asset light business model, we do not expect significant borrowings to fund its CAPEX requirements in the near future.

Source: AmInvest Research - 15 Mar 2023