Mercury Securities has made a “Subscribe” recommendation on Seng Fong Holdings Bhd with a target price of RM0.82 based on FY23F EPS of 7.2 sen and a PE of 11.4x in line with the industrial sector’s 1-year forward. Its IPO Price RM0.75
It said that it likes the stock for its attractive growth prospects and a strong track record on the back of an expanding world vehicle sector which is expected to grow at a 5- year CAGR of 7.03% from 2021 to 2025. The target price represents a potential return of 9.3% over the IPO price.
The stockbroking firm said that the company has a strong export market share of 11.79% in FY21 against the export volume of block rubber in Malaysia. The company also captured an export market share to China of 14.78% against Malaysia’s export volume of block rubber to China.
It said that the business is driven by export demands from its clients in China, Taiwan, India, and others. For the past 3 years from FY19 to FY21, export sales represent approximately 99% of the company’s revenue throughout FY19 to FY21.
The stockbroking firm said that the expansion growth to improve annual productivity capacity. The company intends to improve their production capacity by increasing production hours to 17 hours per day, in addition to adding a second working shift with an additional 48 and 45 new workers in Factory 2 and Factory 3.
This is expected to improve their total annual production capacity to 166,000 MTS p.a. by 3Q23, in line with its annual production capacity growth which is expected to grow at a CAGR of 11.5% from 1986 to 2023.
