ECA Integrated Solution (ECA) saw its cumulative 9MFY23 core earnings double to RM10.7m on the back of improved sales from the Integrated Production System and Standalone Automation Equipment segments. The strong set of results were in line with our full-year expectation, making up 73%. We gather that some projects were pushed back to the final quarter of the financial year, hence, we do not rule out the possibility of stronger-than expected results for 4QFY23. We maintain our Outperform call with an unchanged TP of RM1.12 based on 35x FY24 EPS. No dividend was declared for the quarter.

• 3QFY23 revenue rose 8.8% YoY. During the third quarter, revenue rose from RM10.0m to RM10.9m, underpinned by increased sales from both the Integrated Production System and Standalone Automation Equipment segments. Of the RM10.9m sales recorded, Standalone Automation Equipment and Integrated Production System contributed 66% and 29%, respectively. The remaining 5% was derived from maintenance services and trading of spare parts. In terms of industry breakdown, automotive/ EV accounted for 95.3% of the total group sales while consumer electronic made up 1.5%. Meanwhile, the Group’s bottomline in 3QFY23 was marginally lower at RM3.1m as administrative expenses doubled to RM2.2m. Net margin slipped from 32.3% to 28.8%.

• Update on IPO proceeds. Of the RM25.5m raised from the listing exercise, ECA has utilised 98.3% (previously 83.9%), or RM25m. Majority of the proceeds are earmarked for acquisition of new advanced machinery to bolster its production capabilities as well as for working capital purposes in order to undertake larger customer orders.

• Outlook guidance. We understand that the current orderbook remains robust despite the slow recovery in the semiconductor industry and stiffer competition for various equipment tenders. It is currently seeing a delay in the Digital Display Tag project due to change of design and slow capital expenditure by the end-customer. They have recently participated in an open-tender for a fully automated assembly line project for Insulated-Gate Bipolar Transistor (IGBT). Management believes it stands a good chance following positive feedback on its prototype. If it successfully secures the contract, it would potentially contribute significantly to Group sales for the next 2 years. Lastly, it has also made small inroads into renewable energy production line, which could see repeat orders in the future.

Source: PublicInvest Research - 2 Oct 2023