CNERGEN: U-shaped rebound?

SMT manufacturing solutions provider. Debuted on the Ace Market on May 24, 2022, Cnergenz Berhad (CNERGEN) primarily specializes in providing SMT (Surface-Mount Technology) solutions and electronic manufacturing solutions for the E&S industries in the Klang Valley, Penang, Kedah, Thailand, and Vietnam. The majority of the group's revenue (56.7% in FY22) is generated from the sale of standalone SMT machinery and equipment, followed by the provision of integrated solutions for SMT manufacturing lines at 38.5%, with the remaining 4.8% attributed to other sources. Notably, the Malaysian market serves as the main market for the group, contributing 58.6% of its operations, while Thailand (36.5%), Vietnam (4.6%), and other regions (0.3%) constitutes the rest.

Capacity expansion. With the proceeds of RM58m raised from the IPO, 67% of this sum will be allocated towards expanding operations, involving the acquisition of a piece of land situated in Plot 31, Penang Science Park. Presently operating from a 22.8k sq ft facility in Bukit Tengah, CNERGEN is constructing a new 3-storey plant with a total built-up area of 130k sq ft. This expansion aims to increase CNERGEN's capacity and facilitate in-house modification and refurbishment of machinery and equipment. The 6-fold increase in production space is expected to be constructed in FY24, supporting both its smart factory solutions and the thriving SMT segments, driven by (i) diversification of trade in the midst of the US-China trade war and (ii) the addition of new customers. It is worth noting that Fortune Business Insights has projected a CAGR of 6.8% for the global electronic manufacturing services market from 2022F to 2029F, with Asia Pacific holding the largest market share.

Transferring to Main Market. CNERGEN proposed to transfer its listing to Main Market after the group successfully met the requirements set by SC. The application for this transition was submitted to the SC on August 15, 2023. This move will be another strong catalyst for share price rerating as it allows CNERGEN to gain access to a wider investor base.

Pending U-shaped rebound. CNERGEN is pending for a U-shaped rebound, with indicators showing uptick bias. A successful breakout above RM0.70 neckline will spur the price toward RM0.73-0.77-0.82. Cut lost at RM0.59.

Collection range: RM0.64-0.66-0.68

Upside targets: RM0.73-0.77-0.82

Cut loss: RM0.59

Source: Hong Leong Investment Bank Research - 7 Nov 2023