Cnergenz Berhad’s latest results were above expectations, achieving 92.1% and 94.0% of Mercury Securities full year revenue and profit forecasts for FY22, however, it said the results were weaker quarter on quarter. The lower revenue (-17.9% qoq) and lower profit (-23.7% qoq) were due to lower sales of the provision of an integrated solution for SMT manufacturing line and sales of standalone SMT machines, contributing 51.62% and 44.30% to revenue.
Mercury Securities is revising its revenue and profit forecast upward by 17.0 – 18.0% and 19.3 – 23.2% on the back of stronger growth on its SMT equipment and provision of integrated solutions for SMT manufacturing line segments. The house maintains a BUY recommendation on Cnergenz with a revised TP of RM1.15 based on FY23F EPS 5.5 sen and peers’ average PE of 20.9x. The stock is liked for its attractive expansion plans, well positioned to leverage the growing SMT manufacturing solution industry in Southeast Asia which is forecasted by Providence to grow at a 2-year CAGR of 8% from 2022 to 2024.
Cnergenz is currently operating from its 22.8k sq ft existing facility in Bukit Tengah, Penang. An announcement was made on a proposed acquisition of a piece of industrial land at Penang Science Park North for a total purchase price of approximately RM3.02m. The company plans to scale up its operations via the construction of a new 3-storey plant with a built-up area of 130k sq ft, which is approximately 6x larger than its existing production floor space, expected to complete within 4QFY23. Approximately RM37.8m worth of capex will be allocated for this plant, funded via IPO proceeds.
Approximately 66k sq ft of floor space will be allocated for the workshop and assembly area which will enable Cnergenz to perform modifications, customisations, and refurbishment works on machinery and equipment in-house. With the completion of the new plant, the company could be well-positioned to benefit from the growing SMT manufacturing solutions industry in Southeast Asia which is forecasted by Providence to grow at a 2-year CAGR of 8% from 2022 to 2024, and uptake potential demand for the smart factory solutions in the E&S industry.
The company has a purchase order above RM61.2m as of 30 th Sept 2022, where RM39.0m is expected to be fully recognised within 2H22, and RM22.1m in 2023.
Dividend of 0.6 sen per ordinary share was declared ex 7th Dec 2022.
Risk factor. (1.) Slower than expected order flows (2.) Shortages of skilled engineers and technicians.
