Cape EMS (CAPE) reported a record core net profit of RM15.2m in 2Q23, bringing 1H23 core net profit to RM27.8m. Note that 1H23 core net profit has been adjusted for the non-recurring listing expenses of RM4.1m. Meanwhile, a net DPS of 0.55sen was also declared.
YOY, while there are no comparative figures for the preceding quarter’s results as the group was only listed in Mar 23, the 1H23 revenue and core net profit made up 59%/83% of 2022 revenue and net profit, indicating that the company is enjoying good growth.
“Meanwhile, two-thirds of the total revenue came from the industrial and consumer electronic products with relatively better margins,” said UOB Kay Hian (UOB) in the recent Regional Morning Notes.
QOQ, revenue decreased 11% on lower sales from industrial electronic products related to thermal energy devices. That said, core net profit grew 20% on better product mix alongside higher interest income and forex gains.
Since the US-China trade war in 2018, CAPE has been benefitting immensely from the trade diversion which saw its earnings base swell nine-fold from just RM3.8m in 2019 to RM33.5m in 2022.
This marks an impressive three-year revenue/core net profit Compounded Annual Growth Rate (CAGR) of 117%/106% thanks to a rejigged product portfolio towards an industrial-centric EMS business.
“As of 2022, CAPE has five anchor customers with a strategic portfolio exposure of 60:40 between the industrial electronic and consumer electronic segments,” said UOB.
This gives CAPE a balanced growth profile on high growth and steady volume loaders. Note that these customers have made CAPE their preferred partner amid the accelerating trade Diversion.
Despite a strong pipeline visibility from its existing key customers, CAPE remains uptight in scouting for new prospects that best fit into its mid-volume high mix model.
“While indications from the outstanding purchase orders (of RM160-180m) alongside promising prospects suggest a higher utilisation rate which could spearhead record profit beyond 2023, we believe that its intrinsic value might not have been fully appreciated,” said UOB.
Note that the industries where its key customers operate in are experiencing secular growth demand but partially constrained by geopolitical trade war.
Hence, its customer supply chain relocation has prompted CAPE to expand its capacity and improve its service offerings. UOB Maintains the Buy rating with an unchanged Target Price of RM1.60.
