BACKGROUND

EG Industries Bhd (EG) is an Electronic Manufacturing Services (EMS) provider serving customers worldwide for over 30 years. The company offers manufacturing services for computer peripherals, consumer electronic, medical equipment, automotive industrial products and telecommunication products. 

PRICE CHART

Price has just shown a very powerful breakout from the resistance pivot point level of RM0.60 with heavy volume on 2 February 2023. The chart is in a rounding bottom formation targetting the resistance zone of RM0.72 to RM0.84. However, a break below RM0.60 would negate the technical targets of this move.

POINTS OF INTEREST

1.  LOW PE RATIO IN THE EMS SECTOR 

EG recorded its secong highest ever quarterly profits in the latest financial quarter at RM9 million and is trading at an undemanding trailing PE Ratio of only 14 times. This is very low when compared to other small cap EMS players.  For example, Scope Bhd trades at a PE multiple 28 times. Bigger cap EMS stocks are trading at even higher multiples, with names like Nationgate Bhd, VS Industry Bhd and Aurelius Technologies Bhd trading at between 20 times to 40 times PE.

EG is also trading below its NTA of RM0.97 per share when all widely covered EMS stocks are trading well above their NTA!

2. INCREASING HIGHER MARGINS IN THE PIPELINE

On 26 Oct 2022, EG secured a letter of intent (LOI) with US based Cambridge Industries Group (CIG) to produce advanced high speed optical signal transmitter and receiver for 5G wireless network (optical modules). The intention of the LOI is for CIG to transfer its 5G photonics modular technology to EG’s wholly own SMT Technologies Sdn Bhd, which will mark its first ever pioneer technology transfer to South East Asia. 

This is a big catalyst as it allows EG to add 5G photonics modular products of transceivers in its portfolio which has higher profit margins than its current products.

3. CONSTRUCTION OF NEW SMART FACTORY

EG is constructing a new RM180 million Smart Factory 4.0 in Batu Kawan, which is expected to commence operations in 2024. The first fully automated Lights-Out-Smart-Factory 4.0 is sited on 2.43 hectares of industrial land with 22,500 sqm built-up area for its production floor, office building and warehouse.

On completion in 2024, EG’s total built up area for its production, office and warehousing space, including its facilities in Sg Petani would increase by 45% to 80,000 sqm. This would facilitate the expected new orders from notable new local and foreign customers.

CONCLUSION

Currently being in the hottest sector of the stock market and trading at an undemanding PER of only 14 times, EG has the making of a big laggard play. With the impending start of operations at the new factory in 2024 coupled with new higher margin products, EG has the right catalyst to make it a stock to watch!

Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks. Consult your financial consultant before making any financial investments.