Genetec Technology Bhd (“Genetec” or “the Group”) is principally involved in designing and building of customized factory automation equipment and integrated vision inspection systems from conceptual design, development of prototype to mass replication of equipment. Riding on the strong demand of EV worldwide and Genetec’s niche capability, we forecast Genetec to register earnings of RM52.0m and RM65.9m in FY2022 and FY2023 respectively. BUY with target price of RM3.00 based on 31x PER (as per peers’ average) over FY23 EPS with a potential upside of more than 30%. The Buy call is derived from the robust demand of EV automation machines from its key customers and relatively higher profit margin.

With ISO 9001:2015 standard, Genetec creates cost effective and advanced manufacturing systems by integrating software and sensors and precision mechanisms. Its assembly processes include auto feeding, auto component height checking, robotic pick and place, auto flipping, auto vision inspection, auto laser marking, to list a few. The applications are tailor made to suit customers' requirements, from manual, semi-automated to fully automated.

The Group has a total production capacity of 300,000 sqft currently with 100% home grown talents (total 506 staffs). Since 2021, Genetec started securing phase 1 of battery cell manufacturing line from its North America customer. The final product of the turnkey manufacturing line includes sensors, lidar, radar, camera, infotainment system, battery, electronic control unit, I brake system and ABS.

US Governments have introduced regulations and incentives to accelerate the shift to sustainable mobility. Regulators worldwide are defining more stringent emissions targets. The European Union seeks to reduce net greenhouse gas emissions by at least 55% by 2030, and the Biden administration introduced a 50% electric vehicle (EV) target for 2030.

Genetec has developed a close business relationship with its major customer especially its EV North America customer. Its North America customer envisages to increase its annual battery production rate by CAGR of approximately 52% by Year 2030. With this, the management is optimistic about the robust orderbook replenishment prospects from its key customer and is looking to venture into other industries such as energy storage space in the future.

Source: Rakuten Research - 20 May 2022