ECA Integrated Solutions Berhad (ECA), a Penang-based automated manufacturing solution provider is making its debut on the Ace Market Bursa Malaysia today. ECA is principally involved in providing Integrated production systems (IPS), standalone automated equipment and after sales services including provision of technical support services and spare part replacement. IPS was the prime generator of its FY22 revenue with 85% contribution, whereas standalone automated equipment made up of 10% followed by 5% from after sales services. ECA’s FY19-FY21 revenue and net profit grew by 63.5% and 144% CAGR attributed to strong IPS job orders. Driven by growing demand, we forecast ECA to register net profits of RM7.2m and RM9.3m for FY22 and FY23. BUY with a TP of RM0.32 based on 20x PER over FY23 EPS, 30% discount to its listed peers due to smaller market capitalization.

The group’s IPS is customized modules that allow software controlled to perform the complete set of operation process with minimal human labour and error rate. ECA plans to widen its solutions range by providing smart factory solutions to embrace Industry 4.0 via more D&D initiatives collaboration and cross-selling the smart factories to the existing customers.

ECA earmarked RM7.7m of its IPO proceeds to acquire new machineries within the next 2 years, comprising of gantry machining centres, CNC vertical machines and mill tap centres to cater greater fabrication works and enhance productivity and accuracy in its D&D. Additionally, RM1m out of the RM14m working capital from IPO proceed projected to recruit skilled manpower to ramp up the capabilities in mechanical, software, and electrical engineering.

ECA has a broad regional customer base spanning across Malaysia, North America, Europe and Asia. ECA expects to ride on the mass adoption of semiconductor, EV, 5G and Solar which collectively contributed 65% of its FY21 revenue. According to Providence Independent Market Research, automated manufacturing solutions are anticipated to grow with 2-years CAGR of 8.7% globally and 19.3% domestically. Thus, we believe the spurring industry will provide huge opportunities for ECA.

As at 5 Oct 2022, the group has accumulated RM14.7m outstanding purchase order and expected to be recognized in FY22 and FY23. Post listing, its gearing ratio will reduce from 0.28x as at 5 Oct 2022 to 0.12x. The company targeted a dividend payout ratio of up to 20% of its PAT.

Source: Rakuten Research - 23 Nov 2022