Review

• Coraza’s 9MFY22 core net profit of RM11.2mn (+31.0% YoY) came within ours and consensus full-year estimates at 74.2% and 72.9% respectively.

• YoY. 9MFY22’s core net profit climbed 31.0% YoY to RM11.2mn as revenue advanced 50.6% YoY to RM107.4mn – which notably exceeded FY21’s of RM106.mn (+26.8% YoY). The robust growth was driven by both the sheet metal fabrication and precision machining segments. By end-user market, contributions as a % of total revenue were led by semiconductor at 60%. This was followed by instrumentation at 19%, and life science and medical devices at 13%. Meanwhile, core net profit margin eased 1.6pp to 10.4%, attributed to increased cost from: i) minimum wage hike, ii) higher material cost amid inflationary pressure, and iii) set up cost for a new facility. However, note that the group expects to progressively pass through the cost increase in the coming quarters.

• QoQ. 3QFY22’s core net profit increased 13.4% QoQ to RM4.0mn with revenue higher 11.7% QoQ to RM38.6mn. Revenue was driven by both the sheet metal fabrication and precision machining segments.

Impact

• We make no changes to our earnings estimates.

Outlook

• We expect Coraza to extend its growth trajectory, underpinned by its key end-user markets including semiconductor and instrumentation. We foresee strong demand for its fabricated parts designated for the semiconductor industry amid robust investments by fabs to expand capacity. The SEMI organisation forecasts global fab equipment spending in 2022 and 2023 to be robust at US$99bn (+9% YoY) and US$97bn (-2% YoY). The robust investments represent the industry’s push to meet medium to long term demand on the back of secular trends including 5G, artificial intelligence, high-performance computing, the Internet of Things, and vehicle electrification, among others.

Valuation & Recommendation

• We maintain our Buy recommendation on Coraza with a TP of RM0.985 based on a target PE multiple of 23.0x against CY23F EPS. We continue to like Coraza for its earnings growth prospects (FY22F/FY23F/FY24F: +17.9%/+21.7%/+16.9%) backed by its expansion plans, exposure to high growth industries including semiconductor, and established relationships with multinational corporations.

• Key downside risks include: i) dependence on major customers, ii) raw material price fluctuations, and iii) a prolonged COVID-19 pandemic and geopolitical tensions both weighing on economic growth and disrupting supply chains.

Source: TA Research - 29 Nov 2022