Primarily serving the semiconductor and electronics industry value chain, 3REN Bhd (3REN) is principally involved in: i) provision of product engineering services, ii) provision of engineering support services for integrated circuit (IC) assembly and testing, iii) design, development, and sale of digitalised solutions, as well as iv) design, development, and sale of automated equipment. Beyond the semiconductor and electronics sectors, 3REN's digitalised solutions and automated equipment are also tailored for customers in manufacturing industries, as well as other sectors such as automotive, healthcare, industrial, and local city councils. Currently, 3REN carries out most of its business through its Penang headquarters, with additional offices in Selangor.

3REN is strengthening its research and development (R&D) with projects like the Nervii Platform and Universal Test Automation Platform (Uni-TAP), aiming for commercialisation by 4QCY26. The Group plans to open two Delivery Centres to enhance efficiency, scalability, and provide more sophisticated engineering services, with the first expected to begin operations in 4QCY24. Additionally, 3REN will establish a marketing and sales office in Singapore by 1HCY25 to ultimately expand its reach into international markets, boosting its competitiveness and operational growth. We derive a fair value of RM0.34 based on a 16x PE multiple to its FY25F EPS of 2.1sen. The IPO is expected to raise approximately RM30.8m from the issuance of 110.0m new shares. Besides utilising 23.4% of the proceeds for setting up new Delivery Centres. 16.6% and 9.7% of the proceeds are allocated for R&D expenditure and establishment of new Singapore office, respectively.

• Growth drivers. 3REN’s growth will be driven by: i) strengthening of its R&D capabilities, ii) setting up of new Delivery Centres, and iii) establishment of a n ew office in Singapore.

• Competitive strengths. 3REN’s competitive strengths include: i) wide range of solutions and services, ii) wide range of recurring and multinational customers, iii) experienced and technically-strong key management team, iv) solutions and services with consistent quality, as well as v) mobilisation of project team with contractual workforce.

• Catalysts. Key drivers may include: i) growth in semiconductor and electronic industries, together with manufacturing-related industries, ii) modernisation and transformation of manufacturing facilities, iii) increased outsourcing and relocation of manufacturing activities to Southeast Asia, and iv) government initiatives to develop the nation’s semiconductor ecosystem.

• Key risks. Key downside risks, among others, include: i) dependency on semiconductor and electronics industry, ii) competition, iii) dependency on its ability to secure new purchase orders, and iv) dependency on certain major customers.

Source: PublicInvest Research - 18 Oct 2024