Contrary to the cautious stance in its previous investor briefing, management has turned more positive this time round after securing new and repeat orders for both the integrated production systems (IPS) and standalone automation equipment (ATE) businesses. IPS will continue to be the key growth driver for the Group until FY24F. Following this post-result briefing, we are increasingly optimistic that earnings could surpass our forecasts for FY23. We reiterate our Outperform call on the company with an unchanged TP of RM1.12. 

• Getting more bullish. Management guided that its current book-to-bill ratio currently stands at 1.5x (calculated over 2QFY23) and the orderbook will last for the next 3-6 months. About 50% of the orderbook is derived from the digital display tag under the IPS segment while the remaining 50% comes from the Insulated-Gate Bipolar Transistors (IGBT) and EL2D, laser drill products under the ATE segment. In view of more upcoming orders for IPS products, management expects stronger performance for 2H 2023. In-short, IPS is expected to be the key growth driver for FY23- 24F, contributing 60%-70% of Group sales. Management has also set its target for another 20%-30% growth for FY24.

• Freeing up more space for new IPS orders. The new plant, which has a total production floor space of 11,000 sq ft, has recently secured certificate of completion and compliance (CCC) from the local authority. To cater for the huge IPS orderbook, it will relocate all computer numerical control (CNC) machines to the new plant to free up existing production floor space for the IPS production, which could potentially go up to 36 stations compared to current 9 stations. As of now, the utilization of production floor space stands at 30%.

• ATE continues to grow. The ATE segment is also expected to see more repeat orders on the back of IGBT EV-related devices and potential new customers to cater for their EV projects. It is worth noting that its platform can cater for both silicon and SiC-based IGBT.

• More opportunities on the way. Apart from securing one IPS order for digital display tag product, ECA is still bidding for another repeat order for digital display tag production line, which is worth at least RM6-7m. We understand that the customer is looking at more than 20 production lines over the next 4-5 years. Management believes it has the advantage over its China counterparts as its performance is far better, and it is also a pioneer in this production line design. Meanwhile, it is also participating in another new IPS tender for electric vehicle (EV) parts as the customer is looking for more than 10 production lines over the next 2-3 years. Despite seeing competition, management believes it has the advantage in terms of the complexity of the project. It is worth noting that 50%-70% of these EMS orders are normally undertaken by the customer’s in-house automation while the remainder will open up for tender.

Source: PublicInvest Research - 28 Jun 2023