Company Overview

Swift Energy Technology Berhad (SETB), an emerging Malaysian company, will be listed on the ACE Market of Bursa Malaysia on 8 Jan 2025. SETB is a company specializing in industrial automation and power systems. It provides solutions in sectors such as oil and gas, renewable energy, and manufacturing. The company is known for its expertise in process control, power distribution, and Ex solar photovoltaic (PV) systems.

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Business Model and Competitive Edge

Swift Energy Technology Berhad (SETB) operates in the industrial automation and power systems sector, a field where its competitive edge lies in its specialized capabilities and certifications. SETB provides customized solutions across the oil and gas, manufacturing, and renewable energy sectors, establishing itself as a leader in highly specialized and technical markets. The company is renowned for its expertise in engineering design and its ability to deliver advanced electrical and instrumentation systems that meet the stringent safety and precision requirements of industries like oil and gas. This indicate SETB’s commitment to technical excellence and its ability to operate in markets characterized by high entry barriers, where expertise and compliance with rigorous standards are essential for success.

Key Competitive Strengths include:

1.      Niche Expertise in Industrial Automation: SETB's IECEx and ATEX certifications for explosion-proof solar PV systems and electrical equipment underline its adherence to international safety standards. These certifications also enabling its products to operate in hazardous environments such as offshore oil platforms.

2.      Global Network: It has formed strategic alliances with international customers giving it accesses to diverse markets.

3.      Strategic Partnerships: It is an approved Siemens partner and authorized distributor of multiple industrial and power products.

4.      Experienced Leadership: A management team with over two decades of expertise supports business stability and growth.

5.      Integrated Capabilities: SETB’s in-house engineering and automation capabilities ensure quality control and system reliability.

6.      R&D Investments: SETB focuses on technological advancements in automation and energy efficiency, staying ahead of competitors.

Financial Performance

SETB has shown steady revenue growth, with revenue increasing from RM56.15 million in FY2021 to RM92.43 mil in FY2023. Its profit after tax also grew significantly, reaching RM12.2 mil in FY2023. These trends indicate financial stability, strong market demand and efficient cost management.

Profit Margin Expansion: The company's profit before tax margin increased from 6.5% in FY2021 to 14.3% in the latest financial period (FPE 2024). This improvement reflects effective cost management, product competitiveness and operational efficiency.

Growth Potential

The IPO funds will primarily be utilized for:

1.      Facility Expansion (28 mil): A new fabrication facility and R&D centre will enhance production and innovation capacity.

2.      Regional Growth (4.03 mil): Expansion in Southeast Asia will increase market reach and revenue growth potential.

3.      Technological Investments (2.2 mil): Procurement of new machinery and software will bolster operational efficiency.

4.      Establishment of a Dedicated R&D Centre (RM1.48 million): Continued focus product innovation and development to maintain competitiveness in the automation and power systems industry.

5.      Repayment of Borrowings (RM15 million): Reduce debt, improving financial health and lowering financing costs.

6.      Working Capital (RM13.846 million): Cover operational costs and ensure smooth business operations.

SETB is allocating 40% of its IPO proceeds (RM28 mil) to construct a new 3-story fabrication facility and upgrade existing facilities. This expansion aims to increase production capacity and support anticipated growth in demand.

Besides, it also establishing a dedicated R&D centre to enhance product innovation, particularly in explosion-proof and renewable energy solutions, aligns with market trends toward sustainable technologies.

By serving industries such as food manufacturing, edible oils, and grain products in addition to oil & gas, SETB reduces its reliance on a single sector and broadens its revenue streams.

SETB demonstrated consistent revenue and profit growth, reaching RM92.43 million in 2023, indicating robust market demand for its product and effective operational management.

Fundamental indicators:

Share price                                      : RM 0.28

EPS earnings per share           : 1.19 cent (based on FY23 earning)

PER (historical)                             : 23.5 times

Net profit margin                         : 13.2%

Outlook for FYE 2025-2026:

1.      Increased Capacity: The new 3-story fabrication facility and mezzanine expansion will likely lead to higher output, catering to rising market demands.

2.      Market Diversification: Expansion into Southeast Asia and renewable energy sectors positions SETB for revenue diversification and resilience against sector-specific downturns.

3.      Margin Stability: The ongoing focus on R&D and process optimization should sustain or improve the current profit margins.

Valuation; Moving forward, I project a 2-year consecutive earnings growth of 25%, with net profit expected to achieve 15.25mil and RM19.1mil over the next two years (FY25 and FY26). Fair value is 50c with forward PE of 27x with FY26 EPS of 1.86c.

Risks :

1.      Reliance on a limited customer base (e.g., Customer A, a key player in the O&G sector).

2.      Exposure to volatile sectors like oil and gas.

3.      Operational challenges such as supply chain disruptions or regulatory changes.

However, SETB's diversification strategy and certifications position can help to mitigate these risks effectively.

Conclusion

SETB presents a compelling investment opportunity, leveraging its strong market presence, certifications, and growth strategies. Despite being in an emerging market, SETB has shown consistent revenue growth, driven by increasing demand for automation in industrial processes. Profit margins remain robust due to the high-value nature of its products and services. The company’s expertise in industrial automation for renewable energy systems and explosion-proof equipment supports its future growth in alignment with the global transition toward green energy.

Appendices: Ex Solar Power Solutions and Navigational Aid Systems

Ex solar PV systems are specialized photovoltaic (PV) systems designed for use in hazardous environments where explosive atmospheres may exist. These systems are engineered to comply with safety standards like ATEX and IECEx, ensuring safe operation in areas such as oil & gas platforms, petrochemical refineries, or industrial zones classified as potentially explosive.

Key Features:

1. Explosion Protection:

   Ex solar PV systems are built to prevent any sparks, heat, or electrical malfunctions that could ignite flammable gases, vapours, or dust in hazardous areas.

2. Photovoltaic Functionality:

   Similar to conventional PV systems, they convert sunlight directly into electricity using semiconducting materials. However, they incorporate specialized housings and components for safety.

3. Certifications:
• ATEX (Atmospheres Explosibles): A European directive ensuring the system is safe for explosive atmospheres.
• IECEx: An international certification for electrical equipment in explosive environments.

These systems are critical for industries prioritizing energy efficiency and safety in high-risk areas, supporting operations with renewable energy while adhering to stringent safety protocols.

Disclaimer:

This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company and the contents of this report should not be considered as professional financial investment advises or buy/sell recommendations. I strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.