We have an indicative fair value of MYR4.15-4.63, as we ascribed a target
FY19F P/E of 26-29x, close to +2SD of its 9-year historical average. We believe
our valuation is justifiable: Elsoft is likely to grow towards a record-high earnings
with a strong orderbook at hand, see a breakthrough in new product
developments, has consistently achieved ROEs of >25% over the past three
years, and booked higher dividend payout ratios. This is backed by sturdy
financials under the helm of an experienced management team. Over time, it
may potentially trade closer to ViTrox Corp (VITRO MK, NR), which is trading at
FY18F P/E of 34x. That said, our assigned fair value is at 15-24% discount from
ViTrox’s forward P/E, given that Elsoft has a smaller market cap.