We are encouraged by the strong prospects of ECA Integrated Solution (ECA) following a recent meeting with management. Management is optimistic of doubling its topline for FY23 in anticipation of more standalone automated equipment orders to be secured from its existing and new customers, as more international semiconductor companies relocate their capacity to Malaysia in view of heightening disagreements between China and US, especially on the technology front, which has led to certain sanctions imposed, amongst others. We raise FY23-25F EPS by 38%-40%, and upgrade our call from Neutral to Outperform with a higher TP of RM1.12 (previously RM0.73) based on revised 35x FY24 EPS.

• FY22 results round-up. Group sales rose 34% YoY to RM27.5m, with integrated production line segment contributing RM23.5m (85%) and standalone automation equipment segment contributing RM3.5m (15%).

• Outstanding orderbook at RM15m. As of end-FY22, the Group’s outstanding orderbook totals RM15m with 50% coming from its standalone automated equipment segment, which is for the back-end test handler and vision inspection a machine. In addition to this, it has also received repeat orders from two German automotive-related companies. Out of the outstanding orderbook, 60% comes from the automotive industry while the remainder is contributed by the semiconductor industry.

• Standalone automated equipment to take the lead. Going forward, management sees the standalone automated equipment segment contributing at least 60%-70% of group sales compared to only 15% in FY22. Strong quarterly results are expected to kick in 2HFY23. Higher margins are also expected as customized-built standalone automated equipment’s are typically higher. Management has also suggested that it is placing greater focus on vision inspection machine development given the booming demand from the automotive industry, while the integrated production system segment is expected to see steady growth of 10% annually.

• Optimistic on securing orders from new customers. Management shared that the feedback for its new vision inspection machines from 2 new customers is positive. As of now, one purchase order from the automotive industry is already in the bag while another is reportedly close to being secured. With both secured, total orderbook could potentially surpass the combined sales for FY21-22. The total unit involved is more than 20. Management also shared that it had successfully automated some manual processes for a US-based ultra-high purity cleaning service provider, which has recently set up a plant in Batu Kawan. That customer has plans to adopt similar automation in other regions, auguring well for ECA.

Source: PublicInvest Research - 30 Jan 2023