Valuation / Recommendation

We recommend SUBSCRIBING to Feytech Holdings, with a FV of RM0.95 based on 11x FY25F EPS, indicating a potential upside of 18.5% to the IPO price. Our target PE of 11x is at a 30% premium to comparable peers’ average PE, which we believe is warranted given Feytech’s strong growth prospects amid new client wins recently.

Investment Highlights

Strong growth trajectory. Feytech experienced impressive revenue growth from FY20-FY23, reflecting a 3-year CAGR of 38.6%. This growth was driven by the expansion into the manufacturing seat division, particularly through seat production for Kia Malaysia in FY22 and Mazda in FY23. Additionally, recent agreements with new clients (Peugeot and Client 2) are expected to drive further growth, with anticipated substantial increases in automotive seat production (>100%) over FY24-26F. We believe these new partnerships will be more than enough to mitigate potential near-term headwinds for the industry, in view of impending implementation of fuel subsidy rationalisation by the government that would likely result in slower car sales. Having said that, we believe Feytech might not be badly affected, given that the car sales of its current clients (Mazda, Kia and Peugeot) are mostly from premium segment of the market, which tends to be more resilient in our view.

De-bottlenecking with plant expansion. Presently, Feytech operates Kulim Plant 1 (KP1) with a floor area of 64k sq ft. The floor space is almost fully used up, which represents a bottleneck in its seat manufacturing process and has resulted in a low utilisation rate of 24% for its machinery. Upon transitioning operations to KP3 and the completion of KP2 by 4Q25, Feytech will have a much larger combined floor area of approximately 165k sq ft. As such, we anticipate this will help Feytech to achieve higher machine utilisation rates of 44-64% in FY24-26 respectively.

Opportunity in AHTV. Feytech plans to establish a new manufacturing facility within the AHTV (Automotive Hi-Tech Valley) region. This strategic initiative aims to increase its production capacity and enhance its service to local and other OEMs in the Tanjung Malim area, while optimising lead times and delivery schedules compared to operations at the Kulim Plant. With the completion of this facility, we believe Feytech is poised for additional revenue growth opportunities beyond FY26.

Risk factors for Feytech include (1) Contracts termination; (2) Labour shortages; and (3) Fluctuation of raw material prices.

Source: Mercury Securities Research - 7 May 2024