Edelteq Holdings Bhd (0278) will be making its debut on Bursa Ace Market today. Edelteq is primarily involved in the provision of engineering support for IC assembly and test processes for the semiconductor industry. Its growth outlook is strong, supported by (i) attractive customer portfolio that includes high-growth multinational clientele; (ii) expanding revenue from engineering & technical service that will uplift group’s margins; (iii) exponential capacity growth. Capitalizing on the sustained demand growth within the 5G space, IoT, automotive, and semiconductor sectors, Edelteq is expected to achieve a net profit CAGR of 26.9% from FY22 to FY25. BUY with a TP of RM0.36 based on 20x PER over FY24 EPS of 1.8sen, aligning with peers on Bursa Malaysia.

Edelteq has a diverse clientele consisting of multinational integrated device manufacturers (IDMs) and OSATs, both locally and internationally. The company’s growth in recent years has been driven by its business relationship with Infineon Technologies (M) SB. From generating RM2.8m of revenue in FY19, Infineon has become Edelteq’s largest customer, contributing RM9m or 37% of the company’s revenue in FY22. Moreover, Edelteq can leverage its association with such notable customers to enhance its market exposure to attract new customers.

Edelteq has also a robust second growth engine leveraging on its engineering and technical capabilities to refurbish used or defective IC assembly and test consumables thus extending their lifespan and providing cost savings without compromising on performance. Given the absence of regional competitors in this niche segment, gross margin is >60%, helping Edelteq to nullify the cyclicality of semiconductor business during challenging times. Furthermore, Edelteq also intends to expand its ATE (automated test equipment) offerings through R&D activities. The new product development of strip-level and wafer-level AOI (automated optical inspection) machines will boost Edelteq’s revenue as it can cross-sell these to existing and potential customers. Demand for these products is solid given the critical role of inspection in reducing the cost of defects.

Edelteq has earmarked RM3.7m from its IPO proceeds to construct the Batu Kawan Factory, a large-scale production facility with an approximate land area of 43,500 sf, which is 5.5x greater than the existing floorspace. The expansion will enable a 30% increase in annual capacity for both IC burn-in boards and PCBs. Additionally, there will be a 400% and 100% increase in annual capacity for dicing blades and PCB gold fingers respectively. The company aims to commence operations at this new facility by 1QFY24.

Management intends to distribute a dividend up to 20% of its PAT, which translates to a forecasted dividend yield of 1.5% for FY24. Post IPO, fresh proceeds of RM24.0m from the IPO are expected to strengthen the group’s net cash position to RM26.7m.

Source: Rakuten Research - 7 Jun 2023

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