KUALA LUMPUR (Dec 15): Mercury Securities Sdn Bhd has a “subcribe” recommendation on Critical Holdings Bhd at 35 sen, with a fair value price of 52 sen, based on earnings per share of four sen for the financial year ending June 30, 2024 (FY2024) and a price-earnings ratio (PER) of 12.9 times, which is a 30% discount to its peers' average PER in the industrial engineering sub-sector.
In an initial public offering (IPO) note on Friday, the research house said it likes the stock for its attractive growth prospects, on the back of a growing mechanical, electrical and process engineering industry that is expected to increase from RM6.6 billion to RM10.1 billion, a 15.2% compound annual growth rate from 2022 to 2025.
It said the target price represents a potential return of 48.6% over the IPO price.
Order book
Mercury said the company had an unbilled order book amounting to RM264.6 million as of the last reporting date, which is expected to provide earnings visibility until FY2026. Of the unbilled order book, RM225.8 million comes from contracts in the northern Peninsular Malaysia region (Penang and Kedah), while RM38.7 million is attributed to the central and southern regions (Selangor, Kuala Lumpur, and Johor).
Risks
Mercury highlighted the risk factors as: i) inability to secure new projects, which may affect future financial performance; ii) project delays, project cost overruns and credit risks; as well as iii) dependency on skilled workforce labour.
Critical Holdings is tentatively slated to be listed on Dec 18.