Valuation / Recommendation

Results were above expectations, achieving 65.4% and 81.8% of our full year revenue and profit forecasts for FY22 respectively due to higher sales of provision of integrated solution for SMT manufacturing line and sales of standalone SMT machines.

We revise our revenue and profit forecasts upward by 5.6 – 10.4% and 7.8 – 24.2% on the back of stronger growth on its SMT equipment and provision of integrated solutions for SMT manufacturing line segments. We maintain a BUY recommendation on Cnergenz with a revised TP of RM1.00 based on FY23F EPS 4.6 sen and peers average PE of 21.7x. We like the stock for its attractive expansion plans, well positioned to leverage on the growing SMT manufacturing solution industry in Southeast Asia which is forecasted by Providence to grow at a 2-year CAGR of 8% from 2022 to 2024.

Investment Highlights

The higher revenue (up 107.3% qoq) and higher profit (up 151.4% qoq) was due to stronger contributions from its Thailand and Malaysian customers which consisted of 45% and 50% of revenue for the quarter, in line with the reopening of the economy.

Capacity expansion. Cnergenz is currently operating from its 22.8k sq ft existing facility in Bukit Tengah, Penang. An announcement on the 17th of August 2022 was made on a proposed acquisition of a piece of industrial land at Penang Science Park North for a total purchase price of approximately RM3.02m. The company plans to scale up its operations via the construction of a new 3-storey plant with a built-up area of 130k sq ft, which is approximately 6x larger than its existing production floor space, expected to complete within 4QFY23. Approximately RM37.8m worth of capex will be allocated for this plant, funded via IPO proceeds.

Approximately 66k sq ft of floor space will be allocated for workshop and assembly area which will enable Cnergenz to perform modifications, customisations and refurbishment works on machinery and equipment in- house. With the completion of the new plant, we think that Cnergenz is well- positioned to benefit from the growing SMT manufacturing solutions industry in Southeast Asia which is forecasted by Providence to grow at a 2-year CAGR of 8% from 2022 to 2024, and uptake potential demand for the smart factory solutions in the E&S industry.

Strong purchase order. The company has a purchase order of RM72.6m as of 30th June 2022, where RM61.2m is expected to be fully recognised within 2H22, and RM11.4m in 2023.

Risk factor. (1.) Slower than expected order flows (2.) Shortages of skilled engineers and technicians.

Source: Mercury Securities Research - 18 Aug 2022