The MoU provides the company with a massive opportunity to enlarge its customer base in the energy storage segment
by ANIS HAZIM / Pic Source: genetec.net
GENETEC Technology Bhd has entered into a memorandum of understanding (MoU) with Asia Precision Public Company Ltd (APCS) to develop factory automation for the energy storage system business in Thailand.
In a filing to the local bourse yesterday, Genetec Technology stated it will also conduct research and development and technology exchange and engage in any other business activities.
“The parties (Genetec Technology and APCS) agree to conduct a feasibility study in relation to the project, including but not limited to the economic feasibility, financial feasibility, technical feasibility and legal feasibility for the most appropriate structure and details of the project,” Genetec Technology’s filing noted.
Upon completion, both parties would enter into further negotiations to carry out the project as a joint venture (JV) under a newly incorporated JV company.
“The MoU provides the company (Genetec Technology) with a massive opportunity to enlarge its customer base in the energy storage segment as part of the ongoing customer base diversification plan,” it said.
The potential JV will also provide the company with a strong presence in Thailand to grow the energy storage business segment.
Last Friday, Genetec Technology’s share price went ex-bonus following the issuance of 630 million bonus shares, increasing the group’s share base to 682.5 million shares.
According to CGS-CIMB Securities Sdn Bhd, the exercise was mainly undertaken to reward its shareholders and broaden its shareholder base.
“Although the bonus issue does not alter Genetec Technology’s fundamentals, we are positive on the exercise as it will help to boost the stock’s liquidity and improve near-term trading sentiments,” CGS-CIMB Securities analysts Mohd Shanaz Noor Azam and Walter AW wrote in a research note on the company.
The broker likes Genetec Technology as a proxy for global electric vehicle (EV) and e-mobility proliferation, with its established track record for developing automated solutions for EV and e-mobility components.
“We see rising global demand for EVs and e-mobility solutions translating into higher order book replenishment from the calendar year of 2022 (CY22F) onwards,” they stated.
Aside from EVs, the analysts opined that Genetec Technology’s battery cell assembly could also be deployed for stationary energy storage solutions (ESS).
As of October 2021, Genetec Technology’s orderbook stood at RM203.4 million, 88% of which were related to EVs, ESS and e-mobility segments.
Moreover, the group expects to deliver a substantial portion of these orders in the second half of 2022 (2HFY3/22F).
“To recap, Genetec Technology delivered 47% year-on-year revenue growth to RM99.6 million in 1HFY3/22F.
“We project sequentially stronger sales delivery in the fourth quarter of CY21F, driven by a healthy order backlog,” they added.
CGS-CIMB Securities reiterated its ‘Add’ call on Genetec Technology with RM4.15 ex-bonus target price based on 40 times CY23F price-earnings and one standard deviation above the Malaysian automation test equipment (ATE) sector mean of 32 times.
“We think our target valuation is justified given we project Genetec Technology to deliver over 244% core net profit compound annual growth rate (CAGR) (2020-2023F), significantly outperforming the Malaysian ATE sector’s three-year core net profit CAGR of 24%,” they noted.
The analysts noted potential re-rating catalysts for the stock are higher-than-expected orderbook replenishment, a rise in institutional funds’ holdings, expansion into new customers or verticals, and potential interest in Genetec Technology as an environmental, social and governance.
“Lower orderbook replenishment due to delays in customers’ plans and appreciation in the ringgit against the US dollar are potential downside risks to our call,” they wrote.