“As we assign a target price-earnings ratio (P/E) of 20 times its calendar year 2024 (CY2024) earnings per share (EPS), we derive a fair value of 33 sen per share.
“This takes into account the group’s proven track record and expansion plans, which will allow it to capitalise on the next semiconductor upcycle,” said the research house in a note today.
Additionally, it has also taken into consideration the group’s experienced management team, established clientele, healthy double-digit margins, and robust balance sheet.
Penang-based Edelteq is involved in the provision of engineering support for integrated circuit assembly and test processes in the semiconductor industry.
Based on its IPO price, the counter is priced at a trailing P/E of 17.7 times core EPS for CY2022. It will have a market capitalisation of RM127.81 million upon listing on May 30.
Edelteq aims to raise RM24 million from its IPO. From this sum, 42.7% of gross proceeds will be used for the repayment of bank borrowings, followed by 15.3% to construct a Batu Kawan factory, and 14.1% for working capital.
Steady growth rate
TA Securities also forecasts a 14.6% three-year compound annual growth rate (CAGR) in core net profit to RM10.9 million for the financial year ended Dec 31, 2025.
It also sees a CAGR of 12.5% in revenue to RM34.7 million for the same financial year.
“This is premised on our FY2023/FY2024/FY2025 sales growth assumptions of -5%/+25%/+20%, and corresponding earnings growth (forecasts) of -4.5%/+27.6%/+23.5%,” it added.
The lion’s share of its revenue (77.6% or RM18.91 million) is from the domestic market, whilst overseas markets such as Singapore, China, Thailand and the US accounted for the remaining 22.4%.
Edelteq had a net cash position of RM3 million, with cash and bank balances of RM6.2 million and borrowings of RM3.2 million as at end-December 2022.
The group’s sales are expected to enjoy a strong rebound in FY2024 and FY2025 as demand picks up due to secular trends.
“As at April 10, Edelteq had unbilled purchase orders of RM7.1 million, which are expected to be fulfilled during the year,” said TA Securities.
The opening of the Batu Kawan plant, slated for early 2024, should also bolster growth.
TA Securities projects forward dividend yields of 0.8%, 1.4% and 1.7% for FY2023, FY2024 and FY2025 respectively, based on the group’s fixed dividend policy, and assuming a payout of 20% profit after tax.
Stay current - Follow FMT on WhatsApp, Google news and Telegram