SAM Engineering downgraded to ‘Hold’, aerospace strength to offset equipment weakness in the near term

SAM Engineering & Equipment (M) Bhd (SAMEE) has been downgraded to ‘Hold’ from ‘Buy’ at HLIB Research with an unchanged 52-week target price of RM4.92. The counter dropped 5% to RM4.85 from RM5.09 yesterday.

“SAMEE foresees short term soft demand in equipment business due to broad base inventory adjustments and underutilisation,” it said in a note released today.

It noted that air travel has recovered to almost pre-pandemic levels with revenue passenger kilometers (RPKs) and available seat kilometers (ASK) back 94% and 98% of pre-Covid levels.

It said 2023 was a record year for commercial aircraft in terms of aircraft deliveries, net new orders and order backlog.

The revenue contribution from B737 Max family products is less than 5%. The consolidation of Aviatron is projected to elevate aerospace contribution from 23% to 35%.

On the outlook for SAMEE, HLIB Research said it likes the counter given its exposure in both the ultra-fast-growing aerospace and semiconductor industries, which it deemed both to be long-term complementary.

“SAMEE is a highly rare secular growth stock and we are positive for the following reasons: (i) the global semiconductor industry is gradually recovering from the inventory correction cycle; and (ii) aerospace is turning around strongly as global air passenger travel has recovered to >99% of pre-pandemic level. While the group’s Thailand expansion will take time before breaking-even, we are encouraged by the narrowing losses in each subsequent quarter,” it said. – TMR