Valuation / Recommendation

Results were within expectations, achieving 25.3% and 28.0% of our full year revenue and profit forecasts for FY23 respectively. The higher revenue (+47.5% qoq) and higher profit (323.5% qoq) was due to stronger sales of provision of integrated solution for SMT manufacturing line and higher purchase orders from Thailand customers.

We maintain a BUY recommendation on Cnergenz with a TP of RM1.09 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 FY24. 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. Th company has an unbilled sales order of RM51.72m as of March 2023 (Dec 2022 – RM68.53m) where approximately 32% is for integration solution for SMT manufacturing lines and 55% 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 - 26 May 2023