CGS-CIMB Not Alarmed By Genetec’s Share Price Fall, Says Outlook Remains Resilient

CGS-CIMB is not too concerned over Genetec Technology Bhd’s recent share price fall, which it believed could be due to growing concerns over moderating electric vehicle (EV) demand.

“Genetec’s share price is down 14% over the past 1 week, triggered most recently by US-based car rental company Hertz scaling back on its EV fleet expansion.

“While there has been some news indicating softening EV demand globally since 4Q23, our recent checks with the management indicate that the outlook for the group’s EV and energy storage segments remains resilient,” it said in its Company Note on Friday (Jan 19).

It reiterated is ADD rating and a GGM-TP of RM3.60 (WACC: 9.5%; LTG: 6%).

“Genetec is trading at 14.0x CY25F P/E, a 44% discount to the average basket of local automation solution providers’ 25.2x. We keep our forecasts unchanged, pending a meeting with the management.

“We see the recent pullback in share price as a good accumulating opportunity, with catalysts from strong order wins from its EV and auto customers and demand surge for its battery energy storage systems (BESS) solutions.

CGS-CIMB said it ran a scenario analysis on the group’s various growth rate assumptions for its EV business for FY24 to FY25F and conclude that the current share price levels reflect a 30% annual decline in FY24 and 25F EV revenue, all else being equal.

“We think this is excessive considering Genetec’s sole EV customer has a healthy pipeline of new model launches, including the new mass-market EV model by 2024F which should continue to support decent order flows for the company.

“Management has also guided previously during its Nov 23 analyst briefing that it aims to obtain additional scope of works within its EV and auto segments, such as battery assembly and braking regenerative system production lines.”

Per the contract manufacturer of automated industrial equipment management’s guidance during the briefing, this could replenish an additional over RM200 million to its current orderbook by end-FY3/24F, it added.

The research house said the positive outlook in BESS remains intact.

“The management guided during the briefing that it has received purchase orders for 10MWh worth of BESS capacity for small-scale projects, likely to be rolled out by 2HFY24F.

“Genetec has also participated in tenders for the rollout of 705MWh worth of BESS capacity across various domestic projects, per management’s guidance, which could translate to a sizeable increase in its BESS orderbook size.

“Beyond this, management also identified over 4GWh worth of BESS capacity opportunity within the Southeast Asia and Middle East regions that it can participate in.

“We project the revenue mix from BESS could grow from 0% in FY23 to 30% by FY26F to the group, adding incrementally to overall group revenues,” it added.

Key risks of CGS-CIMB’s call are a rapid slowdown in the EV segment resulting in poor orderbook replenishment and ramp-up from its BESS solutions not materialising.

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