PublicInvest Research

Northeast Group Bhd - Precision Component Manufacturer

PublicInvest
Publish date: Thu, 03 Oct 2024, 09:11 AM
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An official blog in I3investor to publish research reports provided by PublicInvest Research team.

All materials published here are prepared by Public Investment Bank Berhad. For latest offers on Public Invest trading products and news, please refer to: https://www.publicinvestbank.com.my/pbswecos/default.asp

PUBLIC INVESTMENT BANK BERHAD (20027-W)
9th Floor, Bangunan Public Bank
6, Jalan Sultan Sulaiman, 50000 Kuala Lumpur
T 603 2031 3011 | F 603 2272 3704 | Dealing Line 603 2260 6718

Leveraging its engineering and machining capabilities, Northeast Group Bhd (NE) is principally involved in the manufacturing of customised precision engineering components for industries such as photonics, electrical and electronics (E&E), semiconductor, telecommunications, and optoelectronics, based on its customers' specific requirements and precise specifications. The Group also offers valueadded services such as surface finishing, sheet metal fabrication, and mechanical sub-assembly upon request to complement its precision engineering component manufacturing. Based in Penang, NE serves both local and overseas customers, including those from the US, UK, Thailand, Singapore, Russia, Canada, Germany, and Hungary.

NE plans to expand its production capacity by constructing a new factory with 79,020 sqft of production space and purchasing 36 computer numerical control (CNC) machines within 36 months, boosting the Group’s overall production capacity. Construction is set to begin in the fourth quarter of 2024, with operations expected to commence by the first quarter of 2027, supporting its future growth. We derive a fair value of RM0.59 based on a 22x PE multiple to its FY25F EPS of 2.7sen. The IPO is expected to raise approximately RM84.5m from the issuance of 169.0m new shares. Besides utilising 6.5% of the proceeds as working capital. 47.3% and 14.7% of the proceeds are allocated for construction of a new factory and purchase of new CNC machines, respectively.

  • Growth drivers. NE’s growth will be driven by: i) construction of new factory, and ii) purchase of new CNC machines.
  • Competitive strengths. NE’s competitive strengths include: i) established track record, ii) deliverables backed by engineering expertise, iii) exportoriented business with long-standing customer relationships, iv) product quality ensured by quality control and international standards compliance, and v) experienced management team.
  • Catalysts. Key drivers may include: i) end-user industry growth and innovation driven demand for precision engineering components, ii) outsourcing of precision engineering for cost-effectiveness, and iii) government initiatives in supporting the precision engineering industry.
  • Key risks. Key downside risks, among others, include: i) competition, ii) fluctuations in raw materials prices, iii) dependency on a major customer, iv) foreign exchange fluctuation, and v) workforce regulatory compliance.

Source: PublicInvest Research - 3 Oct 2024

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