Cnergenz Bhd (CNERGEN) is an electronics manufacturing solutions provider, specialising in surface mount technology (SMT) manufacturing solutions for the electronics and semiconductor (E&S) industries. The group primarily provides its solutions and services to E&S companies, who are looking to: i) commission new integrated production lines for their production facilities, and ii) automate their production facilities. In addition to the abovementioned integrated solutions, CNERGEN is involved in the: i) sales of individual machinery, equipment and tools to E&S companies who are looking to upgrade and/ or modify their existing production line systems, and ii) provision of after-sales technical support and training services for its integrated solutions.

Moving forward, CNERGEN intends to scale up its operations by relocating its premises to a new and expanded facility, design and develop its proprietary range of smart factory solutions, apart from growing and developing its SMT production line solutions. We derive a fair value of RM0.71 based on a c. 17x PE multiple to its FY23F EPS of 4.2sen. The IPO is expected to raise approximately RM58.0m from the issuance of 100.0m new shares. Besides utilising 65.2% of the proceeds for expansion of the group’s facility, 10.3% and 17.2% of the proceeds are allocated for research and development (R&D) as well as working capital, respectively.

• Growth drivers. CNERGEN’s growth will be dependent on: i) scale-up of operations with relocation to a new and expanded facility, ii) development of its proprietary range of smart factory solutions, and iii) enhancement of its SMT production line solutions.

• Competitive strengths. CNERGEN’s competitive strengths include: i) technical ability that adapts to rapid technological advancements, ii) proven track record in complying with its customers' stringent selection and quality requirements, iii) established network of reputable suppliers, iv) ability to tap into the opportunities arising from the growing E&S industries in Malaysia, Thailand and Vietnam, as well as v) having an experienced and technically strong management team, together with a sizable engineering division.

• Catalysts. Key drivers may include: i) rapid technological advancements in E&S industries, ii) shift towards smart factories, iii) relocation of electronics manufacturing activities to Southeast Asia (SEA) following the US-China trade war, and iv) government initiatives to grow the E&S industries in SEA.

• Key risks. Key downside risks, among others, include: i) dependency on the performance of E&S industries ii) competition from various industry players, iii) foreign exchange fluctuations, iv) potential termination, non-renewal and exclusivity of its distributorships, together with v) relationship with its affiliates which may be subject to adverse changes.

Source: PublicInvest Research - 11 May 2022