Post Supercomnet’s 2Q24 investors briefing, we reiterate our Buy recommendation with an unchanged target price of RM1.73. We believe the group is poised for more growth in 2H24, driven by medical and automotive segments. In our forecast, we project FY24 net profit to grow by 31.9% to RM39.2mn.

Review of 2Q23

Supercomnet’s 2Q24 net profit rose 15.2% YoY to RM8.4mn, in tandem with higher revenue of 14.9% YoY to RM38.3mn. The commendable performance was driven mainly by higher sales from the medical segment, which grew by c. 35%, particularly Ambu endoscopy video cables and gastroscopes.

However, the automotive segment sales declined to RM0.8mn as compared to RM3.7mn in 2Q23 due to the temporary low orders for wire harness from Stellantis (restructuring production lines). As such, we understand that the auto segment posted losses of RM400k in 2Q24, amid higher operating cost incurred for setting up its new plant in Gurun, Kedah (near Stellantis plant).

Gradual Recovery for the Automotive Segment

We understand that the recovery in the auto segment is slower than anticipated as orders from Stellantis would likely remain flat in 2H24. However, we believe Stellantis would start raising its orders in 2025, following the completion of its revamp of its Peugeot operations in Malaysia.

Besides that, management is actively working to diversify its customer base by acquiring new clients, instead of heavily relying on a single customer. Management shared that Supercomnet is currently in the final stage of an audit with a potential new customer. If successful, we believe this project will begin contributing to 4Q24 revenue or latest by 1Q25. More importantly, we expect the auto revenue to surpass industrial segment sales in FY24 if the audit result (September) is successful. Meanwhile, talks are still ongoing between Supercomnet and Chrysler in relation to the supply wire harness for Chrysler models in the US market.

Medical Segment Poised for More Growth

Over to the medical segment, we expect a resilient growth in the 2H24 with several new products planned for soft launch such as smart cables for critical care monitoring, Meanwhile, IHS product developments are on track and expected to start contributing to its sales. Overall, we note that demand from Edward would remain resilient, growing at 5-10% every year while orders from Ambu are expected to grow by 10-15%.

As for the mass production of Nanomedicine Therapy Device (treatment for throat, brain, lung and prostate cancer), using catheter technology, we gathered that the customer would receive the residual value report in September. Thereafter, clearance from FDA is expected to take another 2-3 months. With that, mass production is expected to begin in April-25. Thus far, we note that everything seems to be on track as the FDA doctors have already verified all final 60 clinical trials (100% success rate) in 1Q24.

Forecasts

No change to FY24-26 earnings forecasts

Valuation

Reiterate our Buy recommendation on Scomnet with an unchanged TP of RM1.73/share based on 30x CY25 EPS.

Source: TA Research - 30 Aug 2024