Mercury Securities has assigned a SUBSCRIBE recommendation on DS Sigma Holdings with a target price of RM0.66 based on forecast earnings per share of financial year 2023 (FY23F EPS) of 5.1 sen and a price per earnings rtion (PE) of 13x in line with the industrial products sector’s FY23F PE.
Mercury likes the stock for its attractive growth prospect and customer diversification within the E&E industry focusing on the solar photovoltaic (PV) and medical devices industry. The Group has a 2.6% market share by business value. The target price represents a potential return of 21% over the IPO price.
One-stop packaging centre. The company provides packaging products supported by the in-house manufacturing of corrugated board products, supply of packaging materials and provision of value-added services and solutions which is potentially able to reduce packaging cost for its customers.
As of LPD, the company has a production capacity of 26.09 million pieces of carton blanks for flexographic printing machines and 8.70 million pieces of die-cutting sheets for automatic die-cut machines. With a total built up area of 100,000 sq. ft and a total work force of 115 workers, the company is well-positioned to increase its market share of 2.6% and expand its presence in the E&E space.
The company plans to set up a packaging design and innovation centre within its Klang factories to expand its testing and prototyping facilities by investing in testing equipment which will be used to facilitate its front-end value-added services.
Geographical and capacity expansion. The company plans to rent a 25,000 sq. ft warehouse cum office in Batu Kawan, Penang by first half of next year (1H23) with the intention to expand its business operations within the region and expand its target markets to serve customers within the E&E industry focusing on the solar photovoltaic (PV) and medical devices industry.
The company also plans to acquire a 2-storey office detached factory with an estimated built-up area of 100,000 sq. ft by 1H24. The new factory will house new machineries and equipment and increase the company’s production capacity and operational efficiency to cater for more customers moving forward.
Investment into automation and new machines. The company plans to invest into automatic robotic and packaging machines as part of its future plan to fully automate the production of corrugated cartons, and to streamline its manufacturing process and reduce the reliance on manpower going forward.
Risk factors include customer concentration risk as SSCSM, Samsung Electronics, SOME, PAACM and PAVC collectively accounted for 73.32% of total revenue in FY22; and labour shortages.
