Valuation / Recommendation

We have a SUBSCRIBE recommendation on SFP Tech Holdings Berhad with a target price of RM0.51 based on FY23F EPS of 3.7 sen and peers average PE of 15.2x.

We like the stock for its attractive growth prospect, and cheap valuations on the back of a growing engineering supporting industry (ESI) in Malaysia, expected to grow at a 5-year CAGR of 8.9% from 2022 to 2026 as forecasted by Protege. The target price represents a potential return of 86.6% over the IPO price.

Investment Insights

Attractive expansion plans. The company plans to diversify its revenue stream by venturing into the semiconductor back-end inspection industry by manufacturing inspection equipment handler platforms equipped with electronics system and camera imaging. Designing and manufacturing of the generic machine frame is expected to begin in 1Q23.

SFP also plans to expand its production capacity via the construction of manufacturing plant 3, which would expand its floor space from 147k sq ft to approximately 467k sq ft. The new plant which is expected to be completed by the end of 2Q22 would enable SFP to take on additional business opportunities and qualify for potential new customers.

The company intends to purchase 1 new laser tube cutting machine and 41 new CNC 5-axis machines over the next 3 years. The new machines are expected to increase SFP’s maximum manufacturing production hour capacity by approximately 25.3%.

Strong order book and integration capabilities. With the inclusion of the automated equipment solutions business segment via the acquisition of EEASB in 2021, this enables the company to provide a wider range of services, and to cross- sell both automated equipment solutions and engineering supporting services to potential and existing customers in the engineering supporting industry (ESI). The company also have a strong order book of RM20m, whereby RM16.92m is from the engineering supporting services segment and RM3.27m is from the automated equipment solutions segment.

Experienced management team. The company has an experienced management team spearheaded by MD Mr Keoh Beng Huat who has more than 38 years of experience in the engineering supporting services industry.

Risk factors. (1) Fluctuation of raw material prices. (2) Skilled labour shortages.

Source: Mercury Securities Research - 1 Jun 2022