This article first appeared in Capital, The Edge Malaysia Weekly on January 29, 2024 - February 4, 2024

Target price: RM5.52 BUY

PHILLIP CAPITAL (JAN 23): We are positive on Greatech’s long-term prospects on the back of the rising adoption of solar and electric vehicles (EVs) globally, driving a robust three-year profit CAGR of 19% from 2022 to 2025.

Greatech’s new BK4 plant in Batu Kawan, Penang, is scheduled to be completed by 1Q24, which will boost its existing production capacity by 85%. The group is also in the midst of obtaining approval to develop 20 acres of land in Batu Kawan Industrial Park to further expand its fabrication and assembly processes, which could grow capacity by 35%-40%.

On the global front, it is planning to expand its manufacturing presence in Costa Rica, Mexico, India and Germany to better serve its existing and potential US-based EV customers, as well as its medical business.

Greatech had an outstanding order book value of RM1.1 billion as at November 2023, which will provide earnings visibility until 2025. Of the total, 60% was from solar (First Solar Inc), 30% from EV, 8% medical and the remaining from the semiconductor segment. Management has an internal replenishment target of RM1.1 billion for 2024, representing a 27% year-on-year increase. In the long run, the solar and EV segments will continue to make up the bulk of the order book with management guiding for 60% of the total order book, 30% from medical and the remaining from the semiconductor segment.

In the past, Greatech recorded an average profit after tax margin of 25% from 2015 to 2022 and achieved a high of 35% in 2020/21. However, margins faced pressure in 2022, impacted by higher material costs, supply chain disruption, rising administrative costs due to additional hires, and R&D-related expenses. Moving forward, we expect margins to gradually improve to 25% in 2024/25 on the back of improving operating leverage and better product mix.

It has historically maintained a lean balance sheet with minimal debt. As at end-3Q23, the group had a net cash balance of RM189 million. It does not have an official dividend payout policy in place as it focuses on growth.

Target price: RM1.90 UNDERPERFORM

KENANGA RESEARCH (JAN 23): Affin Bank’s shares saw growing interest following the strategic entry of the Sarawak government as a shareholder. While the group shared its views on its prospects, we remain sceptical of it being a leading driver to meet the group’s medium-term targets. Broadly, the group may see hurdles in 1H24, hinged on underlying macro concerns, with hope for recovery in 2H24.

In lieu of a heightened interest rate environment, the group may be holding back on its mortgage growth strategies until rates are more palatable for consumers. Additionally, with certain small and medium enterprises seeing dampened asset quality, no thanks to unfavourable macros, the group may be required to review its position. That said, broader financing prospects may come from ongoing infrastructure projects, while the demand for automobiles (below RM200,000) still appears supportive.

To recap, the group’s FY25 targets include: (i) PBT of RM1.5 billion; (ii) return on equity of 10%; and (iii) loan book of RM90 billion. For the immediate FY23, the group has set a PBT target of RM600 million. Post-update, we leave our FY23/24 assumptions unchanged.

Target price: RM3.60 ADD

CGS-CIMB RESEARCH (JAN 22): Genetec’s share price is down 14% over the past week, which we believe could be due to growing concerns about moderating EV demand, triggered most recently by US-based car rental company Hertz scaling back on its EV fleet expansion. While there has been some news indicating softening EV demand globally since 4Q23, including the scaling back of new EV model launches by automotive brands and EV price cuts, our recent checks with management indicate that the outlook for the group’s EV and energy storage segments remains resilient.

We ran a scenario analysis on various growth rate assumptions for its EV business for FY24-FY25 and concluded that the current share price levels reflect a 30% annual decline in FY24/25F EV revenue, all else being equal. We think this is excessive considering Genetec’s sole EV customer has a healthy pipeline of new model launches, including the new mass-market EV model by 2024, which should continue to support decent order flows for the company.

We see the recent pullback in stock price as a good opportunity to accumulate shares, with catalysts being strong order wins from its EV/auto customers and the surge in demand for its battery energy storage system solutions.

Target price: RM2.02 BUY

RHB RESEARCH (JAN 23): We expect KKB’s 4Q23 core profit to be RM7 million to RM8 million, bringing its FY23 profit to RM30 million (FY22: RM12 million). Factors for such performance may come from higher progress billings of ongoing fabrication jobs — the three standard wellhead platforms for Sarawak Shell (RM300 million) and the Rosmari-Marjoram onshore gas plant in Bintulu (RM112.6 million).

As at end-September 2023, KKB’s outstanding order book was close to RM600 million, with RM510 million worth of jobs clinched in FY23 while the group’s tender book stood at RM266 million — of which we estimate 50% to 60% is for oil and gas-related jobs while the remainder is for engineering, construction and manufacturing contracts. Nevertheless, the group is in the midst of participating in bids (particularly oil and gas) with an estimated amount that could exceed RM1.5 billion (25% to 35% success rate). The outcome of these bids may be known over the next 18 months, with 2Q24 being the earliest.

We increase our FY23-FY25 earnings by 5%, 7% and 2% respectively as we expedite progress billings of its ongoing jobs and increase our FY24 job replenishment assumption to RM500 million from RM400 million.

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