RGT Bhd (RGTBHD) has more than 20 years of experience in providing one stop solution from Research Development to Manufacturing and Testing in 4 main product categories: 1) washroom solution; 2) medical devices; 3) automotive air care; and 4) blow moulded jerrycan. Driven by demand surge in hygiene and air care products during the Covid-19 pandemic, capacity expansion plans are already in place as we forecast RGTBHD to register net profit of RM13.4M and RM24.6m for FY22 and FY23 respectively. BUY with a target price of RM0.73 based on 20x PER FY23f (based on average FY22 forward PER of its local peers).

RGTBHD had recently completed a 70% stake acquisition in Top Degree SB (TDSB) which marked its new venture into designing and assembly of automation machineries with software integration for key customers in HDD (hard disk drives), semiconductor and medical sectors. This synergistic acquisition enables TDSB to utilities its strength in precision metal machining parts and components. Moreover, the acquisition comes with profit guarantee of RM8m for both CY2022 and CY2023.

RGTBHD is expanding its scope of manufacturing activities to include High Precision Machining Parts and Components Business by acquiring a 70% stake in Keenness Precision Engineering (KPE). KPE is involved in CNC milling process and wire cut process for precision parts and components, and contactor springs. We see the additional income stream favourably as KPE has a 6 year business relationship with a Nasdaq listed semiconductor test handlers supplier and the acquisition comes with a profit guarantee for not less than an aggregate of RM6m for CY2022 and CY2023.

With full utilisation on its existing 32 injection moulding machines, RGTBHD has added 13 new machines recently and target to add another 15 machines by April 2022. With that it is embarking on research and developments with new customers in hygiene products. The new customers are expected to start contributing in 1QFY23 and we believe order could come in doubling in 3 years.

The company has a healthy balance sheet with net cash of RM19m as at 1QFY22 which serve as strong support for business expansion. Our buy recommendation is premised on: (i) aggressive capacity expansion; (ii) potential double orders from new customers in hygiene car products; (iii) two new income streams with profit guaranteed; and (iv) its net cash position.

Source: Rakuten Research - 5 Jan 2022