Making its debut on the Ace Market today, SFP Tech Holdings Bhd (SFP) is an engineering supporting service provider of sheet metal fabrication, CNC machining, mechanical assembly, and automation equipment solutions. BUY with a target price of RM0.61 based on 16x PER (FY23 PER peers average) over FY23 EPS, premised on capacity expansion, long standing relationship with its existing customers, strong demand of ESI in Malaysia.

With the inclusion of the automated equipment solution business in 2022, SFP is now a one-stop automated equipment solution provider with control over the entire production and assembly process which will enable it to better serve its customers which are predominantly in the semiconductor, E&E, and Solar PV industries.

SFP has established track record and business relationship with its customers which includes Electro Scientific Industries, Teradyne to name a few. This is testament to its quality products and services, prompt delivery of products as well as ability to comply with supplier selection process. SFP is continuously investing in advanced machinery and equipment for its engineering supporting services segment. Currently, the Group owns 166 materials machinery and equipment comprising of CNC machines, laser cut and punch machines, as well as welding machines. Management alluded that they are able to produce metal workpieces and metal piece parts in high precision fabrication which is as low as 2-micron deviation.

Going forward, SFP intends to expand its production capacity and capabilities via the construction of Manufacturing Plant 3 (expected completion by 4QFY22) and purchase of new machineries (1 laser tube cutting machine and 41 new CNC 5-axis machines), with its IPO proceeds of RM63.5m. The additional space in Plant 3 will allow the Group to diversify its revenue stream via its venture into the semiconductor back-end inspection industry via manufacturing vision inspection equipment handler platforms embedded with camera imaging and electronics system. SFP will utilize RM3m from the IPO proceeds to set up a D&D (development & design) centre so that it can customise both services to better serve its customers.

Looking ahead, the engineering services industry (ESI) in Malaysia is supported by technological advancement, advancement in telco technologies and IoT that spur demand from the end-user markets especially in the semiconductor and solar PV industries (supported by government-led tariff selling programmes). Supportive government incentives are provided in Industry 4.0 related financial facility support and incentives (SFP is given tax incentives up to Year 2025). The ESI in Malaysia is projected to expand at CAGR of 8.9% from 2022 to 2026.

SFP has a healthy balance sheet as it is expected to turn into net cash position of RM48.6m post IPO.

Source: Rakuten Research - 20 Jun 2022