The success of Oppstar, marks a spectacular two-year net profit CAGR of 528% from FY20, which can be traced back to 2014. The perfect constellation was created with the teaming-up of the group’s management team spearheading the company to new heights. From providing IC back-end and front-end design services, the group continued on its journey by focusing on FinFET projects, design projects for ASICs, post-silicon validation services, and full IC design turnkey in 2020 with superb margins. Since then, a superior revenue/net profit CAGR of 78%/528% was achieved in FY20.
Over the years, the group has secured global giant names under its belt in different geographical footprints with a meaningful IC market size globally. With key management’s three decades of experience in IC design services, Oppstar has delivered design projects in various types of ICs (ie ASICs, SoCs, CPUs and FPGAs) using 14nm to 5nm advanced nodes, and has also secured projects in 2022 using 3nm process node technology. Notably, the group has received inquiries from existing and potential customers from different regions for both specific design services and turnkey design services, with up to 200 design engineers required for the enquires. Due to the capacity bottleneck, the group aims to more than double its current headcount of 227 to 500 by 2026. As at end-Jan 23, Oppstar’s order book stood at RM34.3m, mainly consisting of turnkey design services to be delivered in the next 12 months.
Reaping enormous opportunities from the underpenetrated markets alongside the US export ban to China. Recall that the US government has banned IC design giants AMD and Nvidia from exporting their advanced AI chips to China (Nvidia’s H100
and A100; AMD’s MI250) due to potential military use. Capitalising on geopolitical neutrality, Uob KayHian believes Oppstar has the upper hand. It is noteworthy that Oppstar has secured its first AI ASIC projects from China customers in 2020 and has received enquiries from its China customers on specific design and turnkey design services. In terms of market share, by looking at the size of global IC design sales (2021: NTD5.52t or RM819.0b), Oppstar group’s revenue of RM50.5m was only at a meagre 0.0062%.
UOB KayHian has an initiate coverage with BUY and a target price of RM2.28, based on 50.0x FY24F PE. As there are no comparable local listed peers for valuation purposes, the valuation yardstick is based on a 10% premium of its global peers’ average two-year forward PE.
At an IPO price of RM0.63 (19.6x FY23 PE), Uob KayHian sees ample upside from here and expects a three-year net profit CAGR of 35% from FY22 (at an undemanding PEG ratio of 0.5x). Blue-sky valuation if pricing at 2.0x PEG ratio (average peak PEG valuation of tech names during the tech run in 2021) suggests a potentially higher target price of RM3.20 (at 70x FY24F PE).
