Investment Highlights

• Maintain BUY on Feytech Holdings (Feytech) with an unchanged fair value of RM1.32/share based on FY25F PE of 15x, on par with our KLCI target.


• From Feytech's results announcement last month, we note that 1HFY24 core net profit (excluding listing cost) of RM35.4mil makes up 56% of our full year 2024 forecast. This result is consistent with management's statements throughout the IPO marketing.


• 2QFY24 core net income slid 1.5% QoQ to RM17.6mil, closely in line with its local peer Pecca Group (Pecca), which delivered a net income of RM14.6mil (+3.7% YoY).


• Feytech's 2QFY24 core net profit margin of 25.8% was 50 basis points better QoQ. In comparison, Feytech's 1HFY24 core net profit margin of 25.5% was 253 basis points higher than Pecca's net profit margin of 23% for the same period.


• Hence, we can conclude that Feytech's 1HFY24 performance is better than Pecca's in terms of cost control and profit margin.


• 2HFY24 should see stronger revenue growth as 2H is seasonally stronger period, which follows the general seasonal trend of car sales.


• However, Feytech will incur margin compression in 2HFY24 due to start-up costs relating to its Kulim Plant 2 opening. Due to this, we keep our earnings forecast unchanged despite the strong 1H24 performance.


• Feytech is currently trading at 10.4x FY25 P/E, which is at a 30% discount to FBMKLCI and 34% discount to Pecca. We think the stock offers compelling value due to:
  
  i. A direct play on the growing car market backed by strong TIV growth and high value clientele (Mazda, Kia and Peugeot),
  
  ii. Led by a family of highly-focused entrepreneurs with solid long-term ambitions and focus on sustainability,
  
  iii. Immense growth opportunities as auto manufacturers are tilting towards CKD models and using Malaysia as their regional manufacturing hub, and
  
  iv. Strong earnings growth prospects with FY24F-26F CAGR of 16.

Source: AmInvest Research - 6 Sep 2024