Aerospace division long-term growth driver

SAMEE’s aerospace business gathers steam; registered steady revenue growth since 2012 with PBT margin improving from 4.7% in 2012 to 10.1% in 2018. The outlook for aerospace industry is positive underpinned by encouraging air traffic growth forecasted of 4.5% p.a. from 2018 to 2037. We expect the aerospace division’s growth remain and continue to be the key growth driver for the Group.

Equipment business expected to remain strong

The equipment business is relatively volatile and cyclical as it derives majority of its revenue from customer in semiconductor industry. Although there is a concern in the semiconductor peak nears, the immediate outlook for semiconductor remains strong with worldwide semiconductor revenue forecast to grow 7.5% in 2018, hard disk segment is weak but seems to recovering from recent slump.

Healthy balance sheet, minimal gearing and consistent dividend

SAMEE’s balance sheet is healthy, with stable free cash flows and minimal gearing. SAMEE paid consistent dividends to reward shareholders and this makes the stock attractive to institutional investors.

Initiate coverage with Target Price of RM11.30 and BUY call

With revenue and profit growth momentum set to continue, we initiate coverage on SAMEE with a target price of RM11.30 based on our SOP valuation and a BUY recommendation.

Source: Mercury Research - 10 Oct 2018