by AZALEA AZUAR / pic credit: corazaintech.com
TA SECURITIES Holdings Bhd has valued Coraza Integrated Technology Bhd at 56 sen a share due to its healthy earnings growth as its major customers are exposed to high growth segments including semiconductor, life science and medical devices, aerospace and instrumentation.
“At the IPO price of 28 sen per share, Coraza is priced at a trailing price-to-earnings (PE) of 19x against its financial year ended Dec 31, 2020 (FY20) core earnings per share (EPS).
“As we ascribe a target PE multiple of 20x against FY22 EPS, we derive a fair value of 56 sen per share,” TA Securities said in a statement.
The valuation took into consideration Coraza’s track record in integrated engineering supporting services, long standing business relationship with multinational corporations and experienced management team.
TA Securities expects Coraza’s revenue and core earnings to grow at a three-year compound annual growth rate (CAGR) of 7.4% and 28.4% to RM103.8 million and RM13.3 million respectively from FY21 to FY23.
“This is based on a sales growth assumption for FY21/FY22/FY23 of 2.5%/10%/10%, supported by growth of end user markets including semiconductor, life science and medical devices, aerospace and instrumentation,” it mentioned.
Coraza has an orderbook amounting to RM91.5 million.
“We expect the higher economies of scale to result in gradual margin expansion. We forecast core net margin climbing from 12.2% in FY21 towards 12.8% in FY23,” the TA Securities report stated.
Coraza plans to build a new factory which would measure 91,110 sq ft (8,464.4 sq m) with an estimated cost of RM19.7 million.
The factory would be developed over three phases within the coming two years and aims to expand its production capacity and capabilities, as well as providing new services to its customers.
The company has also decided to purchase new equipment such as laser and turret punching machine, laser machine, bending machine and finishing line amounting to RM13.5 million which would increase the group’s capacity by 25%.
“Coraza is also in the middle of implementing a new and more advanced enterprise resource planning system to streamline and automate its processes for more efficient operations.
“The enterprise resource planning system is expected to cost RM1.2 million and be fully integrated by Jan 20,” TA Securities stated.
Being in the semiconductor market, Coraza is set to see demand rise with the advancement in telecommunication technology such as the 5G rollout and the rising adoption of the Internet of Things and Internet of Medical Things.
As of 2020, the local engineering supporting industry is valued at RM6.2 billion.
It is expected to grow at a CAGR of 10.3% from RM7.2 billion in 2021 to RM10.2 billion in 2025.
“The engineering supporting industry is expected to thrive alongside the growth of the life science and medical device, aerospace and instrumentation markets with these industries continuing to require precise components and structures for the production of related equipment.
“Malaysia’s engineering supporting industry is regarded as highly competitive with an estimated 2,000 players, including both domestic and foreign companies,” TA Securities added.