Maybank IB initiates coverage on SAM Engineering & Equipment (SAMEE) with a BUY rating and a TP of MYR6.05 – based on 31x PER on CY25E EPS, which is at parity to +1SD to its 5-year forward PER it says.
The house said it believes that SAMEE is well positioned to capitalise on the expected cyclical recovery of both the aerospace and front-end semicon sectors. Key risk would be a longer-than expected recovery of the global semiconductor industry.
SAMEE has two complementary business segments
It is a contract manufacturer where its aerospace segment (23% of FY23 revenue) specialises in precision machining of niche aerospace products of complex geometry, mostly in the scope of nacelles and engine cases while its equipment segment (77% of revenue) provides equipment engineering solutions like precision machining, sheet metal fabrication, surface treatment, integration and automation, to the semiconductor and data storage industries. SAMEE is an indirect subsidiary of Temasek Hldgs.
Secular growth stock with high-quality end clients
The company’s equipment segment has 3 main clients – Customer X and Y (frontend SPEs) and Z (back-end ATE), all of which have TSMC as their top-paying customer. Various studies (by SEMI, Gartner) have implied a record-high capex on WFE in 2025, implying that we may soon see an inflection point.
Meanwhile, its aerospace segment’s end clients are Airbus and Boeing.
Since 4QFY23, SAMEE’s aerospace division has been consistently raking in profits, signifying that the unit is finally out of the woods after being in the red in FY21 and FY22. Also, SAMEE’s recent acquisition of Aviatron will help boost the unit’s profitability and margins from FY25E onwards.
Maybank IB forecasts a strong 3-year FY23-26E core net profit CAGR of 20% for SAMEE, from: i) the consolidation of Aviatron’s financials from end-Feb 2024; ii) a steady annual improvement in the group’s aerospace sales from record-high backlog orders, coupled with gradual ramp-up of its BB2 plant; iii) a gradual and steady recovery in orders in 1HCY25 for front-end semicon customers, followed by back-end customers in 2HCY25; and iv) commissioning of its RJ2 and BB1 plants for its equipment segment. We estimate RJ2 + BB1 have a revenue potential of c.MYR800m annually.
