Hong Leong Investment Bank has reiterated a “Buy” recommendation for Kobay Technology Bhd with a target price of RM7.00.
It said that due to its diverse business structure, it values Kobay using SOP valuation methodology; the manufacturing division is valued based on 40x of FY23 EPS.
The investment bank said that this multiple is at 17%-20% discount to what we ascribed to its peers under our coverage; property development business is valued using FY21 net book value; and pharmaceutical business is appraised based on 25x of FY23 EPS, in line with industry peers
On the outlook, the investment bank said that apart from the recoveries of aerospace and O&G divisions, the manufacturing segment’s FY22 growth will be driven by the contributions from advanced data server HLA and solar frame production.
It said that the property development segment is expected to contribute more as economic condition normalizes.
“We expect the new income stream from the pharmaceutical segment to start contributing positively in 1QFY22. Note that the newly acquired Avelon Group (70%-owned) in Aug 2021 comes with a profit guarantee of RM25.5m in the course of the next 3 years,” it said.
With the resumption of operations to 100% capacity following the successful PIKAS vaccination programme, we strongly believe that Kobay is poised for a multi-year growth in earnings supported by the healthy pipeline of job orders.