Cnergenz Berhad (“Cnergenz”), a Penang-based Electronic Manufacturing Solutions Provider will benefit from the shift of multinational electronic manufacturers into South East Asia (SEA). We expect its earnings growth to be driven by this new phenomena and its new smart factory solutions (SFS). SFS is targeted to contribute 10% to its revenue over the next 2 years with margin expansion. BUY with a TP of RM1.07 by ascribing 20x PER and rolling over to FY24 EPS as per average PE of its peers on Bursa Malaysia.

Cnergenz posted a commendable 3QFY22 result with RM7.1m PAT on the back of RM62.8m revenue. Its 9MFY22 revenue totaled RM176.m with PAT at RM20m. Revenue from Thailand grew 35.5% as at 3QFY22 while Vietnam’s revenue contribution has reduced to 4% from 7% a year ago. Nonetheless, management is still upbeat on Vietnam and is keeping a close eye on the automotive and industrial related segments for potential orders.

Cnergenz’s new factory which is 6x larger than the current one is expected to commence operation by 4QFY23. Management foresees the revenue to grow exponentially in FY24, mainly from SFS contribution. By reducing the reliance on human capital on operation post COVID-19 pandemic, we believe the increasing adoption of SFS will provide a huge opportunity for Cnergenz. Besides, its PAT margin is expected to be maintained at 10-12% when contribution from SFS scales up in FY24.

Management remains optimistic on the SMT (Surface-Mount Technology) solution business within the SEA region despite gloomy global economic outlook predicted in 2023. The ongoing trade war between US and China has shifted many MNCs to the SEA region. In fact, among the Company’s top 5 customers in Q3FY22, 3 were newly acquired. Total sales order secured stood at RM237.4m as at 3QFY22, of which RM176.2m has been recognized. Though its unbilled sales order of RM61.2m provides earning visibility up to 1QFY24, nevertheless management sees more enquiries from new customers thus expecting approximately 10% YoY revenue growth in FY24.

Source: Rakuten Research - 22 Dec 2022