What a solid couple of months it has been for EG Industries Bhd (EG)! Since we first highlighted EG on 5 February 2023, the stock has gone up a staggering 85% from RM0.62 to the current price of RM1.15. In fact, it even went to as high as RM1.46 on 17 March but has  since retraced due to poor market sentiment.

NOTABLE UPDATES SINCE OUR INITIAL ARTICLE ON EG

1) ATTRACTING SOME ANALYSTS COVERAGE

Currently rather under-researched, this may soon change with EG attracting some analysts’ attention of late. In May 2023, Hong Leong Investment Bank issued a report on EG, pegging its fair value at RM2.23 based on a conservative and highly prudent target of PE of 11x, which it says is at a 27% discount to its peers’ two year forward PE of 15X!   

2) JOINT VENTURE WITH YAMAHA MOTOR CO LTD

EG has joined forces with Yamaha Motor Co Ltd to set up 5G automated intelligent surface mount technology production lines for the group’s upcoming smart lights-out manufacturing plant in Batu Kawan, Penang. The scale of the investment is expected to be up to RM80 million in phases over two years for the implementation and commisioning of the lines.

The Batu Kawan plant is expected to commence operations in first half of 2024 and will complement EG’s existing facilities in SG Petani, Kedah.

3) CAMBRIDGE INDUSTRY GROUP (CIG) SHARE PRICE IS ON THE UPTREND AND REACHING NEW HIGHS

CIG is listed on the Shanghai Stock Exchange and has been on a rampage this year. The stock price is up a whopping 670%! Just to recap, CIG signed a letter of intent with EG to produce advanced high speed optical signal transmitter and receiver for the 5G wireless network in October 2022. According to Hong Leong Research, revenue contribution from CIG has significantly increased from 8% in FY22 to 31% in 1HFY 2023! More orders are expected to flow from CIG with the completion of the new factory in Batu Kawan adding new production lines by more than 40%. 

4) BEST QUARTERLY RESULTS EVER

EG recently announced its highest quarter profit ever of RM10.58 million, an increase of 15% QoQ in its latest results released on 31 May 2023. It was largely ignored by the market as sentiments had been very bearish. The result was very commendable seeing that the majority of stocks widely under coverage had their earnings miss forecast for the quarter.

5) INSIDER BUYING

The CEO and substantial holder of EG, Dato Alex Kang, has been actively buying shares in the company with recent prices ranging from a high of RM1.42 to a low of RM1.09, with the most recent purchase made on 12 June 2023. This is indeed a vote of confidence despite the price already rising over 100% year to date!

CONCLUSION

We believe EG’s journey to become a billion ringgit market capitalisation company has only just begun. Markets tend to move on future expectations so it is best to get ahead of the curve and buy when market sentiment is weak. With the strong run up in the Nasdaq index, currently up over 30% YTD, it is hoped that the bullish sentiment in the US will eventually spread to the Malaysian tech stocks.

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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.