Valuation / Recommendation

We have a SUBSCRIBE recommendation on Crest Group Bhd (Crest) with a FV of RM0.55 based on 20x FY25F EPS, translating to 56% upside to IPO price. Our target PE is based on a 20% discount to the average valuation of its peers, to account for its smaller market capitalisation. We like the stock for its diversified geographical presence, exposure to the recovery in the semiconductor industry, and strong balance sheet.

Investment Highlights

Diversified geographical presence. Crest is mainly involved in the distribution of imaging, analytical, and test equipment solutions to a wide range of industries, particularly semiconductor and E&E. The group has shown consistent strong revenue growth, achieving a 3-year CAGR of 14.7% in FY20-23. This is commendable considering that majority of its clients are from the semiconductor sector, which has been suffering a downcycle since 2H22 and has only begun nascent recovery in 2024. We believe this was largely thanks to Crest’s wide customer base and diversified geographical presence in other countries such as China (24%), Thailand (27%), and Singapore (9%).

Promising growth prospect. We expect Crest to achieve healthy revenue growth of 8-13% in FY24F-FY26F, underpinned by several key factors. The first factor will be the recovery in the global semiconductor industry, which is anticipated to bounce back and expand by 16% and 13% in 2024-2025 respectively. Additionally, we foresee that the China+1 strategy will continue to drive new investment into Southeast Asia, particularly for Crest’s key markets in Malaysia and Thailand, as well as its new expansion into Vietnam. Lastly, we expect Crest's sales in the Chinese market to remain strong, as the Chinese semiconductor industry continues to make significant investments to achieve self-sufficiency.

Stable margins. Given the nature of its distribution business model, Crest has maintained stable GP margins of between 28-29% in previous years, except for FY22. The decrease in FY22 was primarily caused by the sharp depreciation of the Ringgit and a significant slowdown in the semiconductor industry. Looking ahead, we anticipate that Crest will be able to uphold its GP margins at 29%, as the global semiconductor industry continues to recover and the Ringgit strengthens further. Unlike some of its listed peers, Crest is a net beneficiary of a stronger Ringgit as only 60-70% of its sales are denominated in foreign currencies, compared to >90% of its costs (mainly equipment purchase costs).

Risk factors for Crest Group Bhd include 1) Reliant on equipment principals, and 2) Foreign exchange risks.

Source: Mercury Securities Research - 23 Sep 2024