ECA Integrated Solution (ECA) reported core earnings of RM4.1m for 1QFY23 on the back of higher number of deliveries for integrated production systems (IPS) and standalone automation equipment. The solid results accounted for 27.9% of our full-year forecast. Supported by steady growth from the IPS segment coupled with strong demand for standalone automation equipment, we expect to see notably stronger Group earnings in FY23. Maintain Outperform with an unchanged TP of RM1.12 based on 35x FY24 EPS. No dividend was declared for the quarter.

• 1QFY23 revenue rose 36% QoQ. During the first quarter, revenue jumped from RM7.8m in 4QFY22 to RM10.6m due to higher number of deliveries for integrated production systems and standalone automation equipment. Of the RM10.6m sales, the IPS segment accounted for 70% while the remainder was derived from the standalone automation equipment segment. In addition, the IPS segment saw additional contribution from spare part sales as some of the old equipment deliveries required certain modifications. Meanwhile, the Group’s bottomline stood at RM4.1m, supported by steady pre-tax margin of 38.7%.

• Update on the IPO proceeds. Of the RM25.5m raised from the listing exercise, ECA has utlised 44.7% or RM11.4m. Majority of the proceeds are earmarked for acquisition of new advanced machinery to bolster its production capabilities as well as for working capital purposes in order to undertake larger customer orders.

• Outlook guidance. For FY23, management is looking at contribution of 30%-40% from the integrated production line (IPS), with standalone automated equipment making up the remaining 60%-70%. Almost 60% of its sales are derived from the automotive industry, and the remaining 40% from the semiconductor industry. In view of stronger orderbook from the customized equipment, we expect to see higher margin of 33%-35% this year. Meanwhile, the Group has been targeting to expand its customer base for the IPS segment as it currently only serves 2 key customers.
  On product development, ECA remains focused on the automated optical inspection (AOI) machine for 2 new customers. Assuming no delays, sales contribution from the standalone automation equipment segment is expected to pick up in the 2HFY23, led by the delivery of at least 20 units of vision inspection machine. With current facilities, the plant can produce 6 machines every 2 weeks. All told, we expect to see robust growth for the group earnings this year.

Source: PublicInvest Research - 29 Mar 2023