Review

• Coraza’s FY22 core net profit of RM17.2mn (+40.7% YoY) came above ours and consensus full-year estimates at 113.7% and 114.4% respectively.  On our end, the surprise on the upside was due to stronger-than-expected revenue and better-than-expected margin.

• YoY. FY22’s core net profit jumped 40.7% YoY to RM17.2mn as revenue advanced 35.1% YoY to a record high of RM143.3mn. The robust growth was underpinned by both the sheet metal fabrication and precision machining segments. By end-user market, contributions were led by both the semiconductor and instrumentation as they collectively accounted for  80% of total revenue. This was followed by life science and medical devices at 14% and others at 6%. In terms of profitability, core net profit margin improved 0.5pp YoY to 12.0%.

• QoQ. 4QFY22’s core net profit jumped 48.6% QoQ to RM6.0mn despite lower revenue as core net profit margin expanded 6.2pp QoQ to 16.6%  on a better product mix and improved cost efficiency. Revenue fell 6.9%  QoQ mainly on weaker contributions from the aerospace industry.

Impact

• Our FY23F/FY24F earnings estimate are revised marginally after imputing  FY22 figures into our model. We also introduce our FY25F earnings estimate of RM25.1mn.

Outlook

• We expect Coraza to extend its growth trajectory in FY23, underpinned by its end-user markets including semiconductor and instrumentation, life science, medical devices, aerospace, and telecommunications.

Valuation & Recommendation

• In all, we maintain our TP for Coraza of RM0.985 based on a target PE  multiple of 23.0x against CY23F EPS. However, given the stock’s narrowed risk reward potential following its share price appreciation, we downgrade the stock to Hold. We continue to like Coraza for its earnings growth prospects (FY23F/FY24F: +7.1%/+16.9%/+17.0%) backed by its expansion plans, exposure to high growth industries including semiconductor and instrumentation, and established relationships with multinational corporations.

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

Source: TA Research - 1 Mar 2023