ECA is an automated manufacturing solution provider that is principally engaged in the provision of integrated production systems and standalone automated equipment. The group will debut on the ACE market on 23 Nov with an IPO price of RM0.17/share. Listing at an undemanding multiple of 7.7x on FY23f earnings in on its debut, we deem this home -grown automated manufacturing service provider to be a bargain given its strong foothold in the global semiconductor, automotive and solar PV spaces. With that, we ascribe an indicative fair value of RM0.39 for ECA – based on a target P/E of 18x, which is at a c.25% discount to its peers’ one-year forward average P/E of 23x.

Automated manufacturing solution provider. ECA is an automated manufacturing solution provider that is principally engaged in the provision of (i) integrated production systems (IPS), (ii) standalone automated equipment and (iii) after sales service to support the other two segments. ECA will be making its listing debut on the ACE Market on 23 Nov.

Steady growth of both global and Malaysian automated manufacturing solutions (AMS) industry. According to PROVIDENCE Strategic Partners (an independent market research and business consulting company), the global AMS industry is projected to grow at a steady CAGR of 8.7% to a total market size of USD385.4bn (RM1.6tn) in 2024 from USD326.1bn (RM1.4tn) in 2022. Meanwhile, the growth of the AMS industry in Malaysia is expected to be even more robust – at a projected CAGR of 19.3% to USD3.7bn (RM15.3bn) in 2024 from USD2.6bn (RM10.8bn) in 2022.

Acquisition of cutting-edge machineries post-IPO to spur future revenue and profit growth. ECA intends to utilise about 30% of the IPO proceeds (RM7.7m) to invest in new machineries to cater for expansion of its output and enhancement of its internal capabilities. By having these new machineries, it will also be able to undertake more in-house fabrication works and increase the customisability to suit different needs of each customer/industry requirements. The group plans to purchase the following: (i) two 5-axis high speed gantry machining centres; (ii) four CNC vertical machine; and (iii) four mill tap centres.

Proven track record in meeting the standards and expectations of MNCs. ECA is able to consistently secure new and repeat orders from multinational manufacturing companies – a bulk of which comprises the group’s customer base. These multinationals typically have stringent and strict supplier selection processes, involving thorough due-diligence on their suppliers in terms of financial and technical capability, product quality and operating standards and/ or business practices. This goes to show that the group’s integrity and performance of its automated production solutions are in line and they comply with its customers’ needs and requirements.

Impressive future earnings growth. We are project ECA’s FY23-24f net profit to grow at a robust 77% and 34% respectively. This represents an impressive FY21-24f CAGR of 28%.

NOT RATED – Indicative fair value of RM0.39. Our indicative fair value of RM0.39/share is derived from FY23f (FYE Oct) EPS with a conservative target P/E of 18x – at a c.25% discount to its peers’ average one year forward P/E multiple of 23x to reflect: (i) its listing on the ACE market – rendering it less investible to most institutional investors; and (ii) its relatively smaller market capitalisation vs. its peers.

Source: Hong Leong Investment Bank Research - 17 Nov 2022