• Orderbook visibility for its EV segment remains healthy amid continuous factory expansions of its main customer due to rising EV adoption.

• Newsflow on RE investments appear to be gaining strong traction, which should support the strong growth of Genetec Technology’s BESS division.

• The stock is still trading at an undemanding 17.1x FY3/25F P/E, which is at a discount to its comparable peers.

EV Segment to Anchor Overall Growth

Our recent meeting with Genetec’s management reaffirms our upbeat outlook on Genetec’s growth. For its EV segment, management believes the orderbook visibility from Customer C remains bright as the latter’s continuous investments in its gigafactory expansions are still intact. Genetec is expecting an increase of over RM200m by endFY3/24F to its RM266m outstanding orderbook (as at end-Jun 2023), through additional scope of works for its customers, such as battery management units, overall battery assembly, and regenerative braking systems. Its participation in request for qualification (RFQ) may ensure continuous orderbook replenishment ahead, in our view.

BESS Gaining Decent Traction

Outlook on the battery energy storage system (BESS) division appears to be promising, as many parties have expressed interest in Genetec's BESS to complement their largescale rollout of renewable energy solutions. Over the next 6 months, we believe Genetec could generate c.RM65m-70m in revenue from commercialising 40-45MWh worth of BESS to small-scale applications. Beyond that, in FY25F, the total capacity rollout could grow significantly as large-scale projects, such as the planned 2GW solar farm in Pahang by Abu Dhabi Future Energy Company PJSC (Masdar) and Citaglobal, begins to kick in. This is solidified by the recent MoU signed in early-Oct 2023 between MIDA and Masdar to develop up to 10GW of RE projects in Malaysia worth US$8b over the next few years. Admittedly, while there are other regional players competing in the battery storage space, Genetec, along with its partner Citaglobal, would have an edge in several domestic and regional projects due to its strong relationships and ability to provide comparable battery/energy management system. We have penciled in BESS capacity sale of 45/86/121MWh in FY24F/25F/26F, translating into revenue contribution of 17%/26%/32%.

Reiterate Add

We trim our FY24F EPS by 4.0% to account for slight delays in new projects coming through, but leave our FY25-26F estimates largely unchanged, implying a growth of 20- 22% in FY25-26F, following a 24% EPS expansion in FY24F. We believe that the market is still discounting its BESS prospects, as evidenced by its current FY3/25F P/E of 17.1x, a discount to its comparable peer Greatech's (NR) FY24F P/E of 25.3x, per Bloomberg estimates. Reiterate Add, with a slightly lower GGM-derived TP of RM3.60. Key catalysts: stronger-than-expected orderbook replenishment on both its EV and BESS segments; downside risks: fierce competition in the BESS space and a slowdown in EV manufacturing capacity expansion, resulting in weak orderbook replenishment.

Source: CGS-CIMB Research - 11 Oct 2023