Valuation / Recommendation

Results were within expectations, achieving 96.1% and 86.0% of our full year revenue and profit forecasts for FY22 respectively, however results were weaker qoq. The lower revenue (-35.4% qoq) and lower profit (-76.1% qoq) was due to lower sales of provision of integrated solution for SMT manufacturing line and sales of standalone SMT machines, contributing 13.0% (3Q22: 51.62%) and 82.8% (3Q22: 44.30%) to revenue for the quarter.

We revise downward our revenue and profit targets for FY23 by 4.8% and 6.6% on the back of slower sales and maintain a BUY recommendation on Cnergenz with a revised TP of RM1.09 (from RM1.15) based on FY23F EPS 5.2 sen and a PE of 21x. We like the stock for its attractive expansion plans, well positioned to leverage on the growing SMT manufacturing solution industry in Southeast Asia which is forecasted by Providence to grow at a 2- year CAGR of 8% from 2022 to 2024.

Investment Highlights

Capacity expansion. Cnergenz is currently operating from its 22.8k sq ft existing facility in Bukit Tengah, Penang. With reference to the announcement dated 17th August 2022, the company proposed to acquire a piece of industrial land at Penang Science Park North for a total purchase price of approximately RM3.02m. The company plans to scale up its operations via the construction of a new 3-storey plant with a built-up area of 130k sq ft, which is approximately 6x larger than its existing production floor space, expected to complete within 4QFY23. Approximately RM37.8m worth of capex will be allocated for this plant, funded via IPO proceeds.

Approximately 66k sq ft of floor space will be allocated for workshop and assembly area which will enable Cnergenz to perform modifications, customisations and refurbishment works on machinery and equipment in- house. With the completion of the new plant, we think that Cnergenz is well- positioned to benefit from the growing SMT manufacturing solutions industry in Southeast Asia which is forecasted by Providence to grow at a 2-year CAGR of 8% from 2022 to 2024, and uptake potential demand for the smart factory solutions in the E&S industry.

Strong purchase order. The company has a purchase order of RM68.53m as of 31st Dec 2022 (approximately 23% is for integration solution for SMT manufacturing lines and 46% is for standalone SMT machines), which is expected to be fully recognised by year 2023.

Dividends. Dividend of 0.6 sen per ordinary share was declared, ex 7th Dec 2022. The company also recently proposed a second interim (single tier) dividend of 0.8 sen per ordinary share for FY22.

Risk factor. (1.) Slower than expected order flows (2.) Shortages of skilled engineers and technicians.

Source: Mercury Securities Research - 23 Feb 2023