At a briefing with the investment community held last week, management acknowledged that FY23 results were a big letdown as it missed their previous guidance due to unexpected pushbacks by semiconductor customers on capital expenditure (capex) spending who adopted a wait-and-see approach. Despite this temporary setback, management expects to see recovery in the 2HFY24. We cut our FY24-26F earnings forecasts by 13-14% to reflect slower recovery in the near-term however. We maintain our Outperform call though with a lower TP of RM0.58 (previously RM0.73), pegging to a reduced PER of 26x (down from 35x), while also rolling over our valuations to FY25F.

• FY23 results review. Revenue rose 29.4% YoY to RM35.6m as standalone automated equipment (ATE) sales surged 7-fold to RM20.6m, bolstered by existing and new customers while sales from integrated production systems (IPS) tumbled from RM23.1m to RM12.9m. The remaining 6% was derived from maintenance services and trading of spare parts. In terms of industry breakdown, automotive and semiconductor sectors collectively made up 70% followed by consumer electronic at 27%. Management also attributed the higher cost of sales in 4QFY23 due to changes made to the product mix at a later stage as well as higher operating expenses due to more new hiring.

• High confidence in securing first aerospace IPS project. Management is in the midst of discussion with a European player involving 2 major parts, namely the IPS line for aerospace industry players and aero structure fabrication. The newly-added floor space of 11,000 sq ft, which is currently under renovation and various audits, is mainly to cater for this venture.

• Still in the midst of concluding land acquisition. The group, which has voiced its plan to acquire a 3-5 acre of landbank on the mainland, is still in negotiations with Penang state entity, Penang Development Corporation.

• Flattish growth for FY24. Due to the continuous slowdown in capex spending for FY24, management thinks that it could be a flattish growth for the year compared to the previous guidance of double-digit growth. Currently, the book-to-bill ratio is less than 1x, reflecting the lacklustre financial performance in the near-term. Nevertheless, it expects demand to pick up in the 2HFY24. IPS business is currently experiencing slowdown due to pushback in orders from customers and also longer turnaround for a few major projects due to changes made to product requirement. Management is in the midst of discussions with prospective customers for a few IPS projects related to solar, consumer electronics, automotive and aerospace. For ATE segment, despite some pushback and request for delay in delivery by customers, it is expected to see stronger growth in FY24. ECA expects to secure repeat orders from existing customers for carrier tape automated line and automated optical inspection products this year.

Source: PublicInvest Research - 15 Jan 2024