Riding on buoyant tech outlook. According to SEMI’s forecast, 2022 total equipment spending is slated to register another 6.2% growth to USD101.3bn after registering a whopping 18% surge in 2021 to USD95.3bn, making a third consecutive year of growth premised on the ongoing chips shortage and national strategic interests. In the event of the multi-year semiconductor upcycle, KOBAY is well-positioned to achieve new heights with its strong presence in this industry (70% of FY20 group revenue) supported by its in-depth experience and excellent product quality. Besides, the promising outlook of its high-level assembly business driven by the robust demand from its recently-secured advance data server machine project (KOBAY’s target capacity of 60k units per month versus customer’s demand of 100k per unit per month) will be a major catalyst driving KOBAY’s FY22 earnings.

Multiple new income streams to drive growth. Apart from its robust existing businesses, KOBAY’s FY22 prospect will also be driven by two new additional growth engines, namely the pharmaceutical and health and green energy products. To recap, KOBAY ventured into the solar frames manufacturing business in 2021 with a target capacity of 2k tonnes per month to tap into the group capabilities in manufacturing precision metal. We are upbeat about the group’s well-timed entry solar frame projects to drive KOBAY’s earnings, judging from the accelerating solar power demand globally that will keep solar panel demand buoyant. Note that, the group has secured a customer with few more clients in the pipeline to fill its solar frame capacity; this segment is expected to contribute in 2HFY22.

On the other hand, the newly acquired pharmaceutical and health business will create recurring income to enhance KOBAY’s earnings visibility and sustainability. All in, we strongly believe that KOBAY is poised for a multi-year growth in earnings supported by the healthy pipeline of job orders.

Building a base. Following the global tech’s rout, KOBAY has plunged 28% YTD to close at RM4.73 yesterday. Technically, KOBAY is building a solid base at RM4.48- 4.60 levels. A decisive breakout above RM4.78 will spur the prices toward RM4.96- 5.13- 5.35 territories. Cut lost at RM 4.32.

Source: Hong Leong Investment Bank Research - 17 Feb 2022