Making its debut on the Ace Market today, Coraza Integrated Technology Bhd (Coraza) is an integrated engineering supporting services provider involving in fabrication of sheet metal, precision machining, and related services like Design and Development (D&D) and value-added sub-module assembly services. BUY with a target price of RM0.52 based on 20x PER FY22 (a discount from its peers’ CY22 average PER of 30x given its lower revenue base & margins). We like Coraza premised on capacity expansion, long standing relationship with its existing customers from high growth segments and its net cash position.

With more than 20 years track record, the group has built long standing relationships with large MNCs from various industries. As at 30 June 2021, 56.5% of its revenue are generated from Semiconductor industry, 17.9% from Instrumentation, 18.7% from Life science and medical devices while the remaining 6.9% from Aerospace, telco and E&E. Coraza has more than 10 years working relationship with its 4 major customers which are from high growth industries.

According to Protégé Associates, the engineering support industry is projected to expand by 10.3% to RM10.2bn in 2025. Growth in global semiconductor industry is expected to expand from USD440.39bn in 2020 to USD550.9bn in 2021. Demand for life sciences and medical technology remains elevated as the growth in aging population is expected to double by 2050. Meanwhile, instrumentation industry is anticipated to grow by 3.7% from 2021 to 2025.

As part of its expansion, RM17m of its IPO proceeds will be used to construct a new factory with total built-up of 91,110 sq ft and extend its existing factory to accommodate additional machinery to expand production capacity and provide new services as well as cross-selling efforts to grow its business. In addition, Coraza plans to purchase 1 unit of laser and turret punching machine, 1 unit of laser machine, 3 units of bending machine as well as 1 unit of finishing line amounting RM15.5m. This is expected to increase capacity by a further 25% and improve service offerings to meet increasing demand from customers operating in the booming semiconductor industry. Coraza also intends to utilize RM1.2m of its proceeds to implement a new ERP system to streamline and automate its processes for more efficient operations.

Coraza has a healthy balance sheet with its net cash position of RM42.5m in FY2022F. Amid the positive industry outlook and Coraza’s aggressive expansion plan, we expect Coraza to register net profit of RM8.6m and RM11.1m for FY21 and FY22 respectively.

Source: Rakuten Research - 20 Jan 2022