KUALA LUMPUR (May 28): Rakuten Trade has rated ACE Market-bound Smart Asia Chemical Bhd or SAC (KL:SMART) as a 'buy' at 40 sen, with a fair value of 49 sen, and said it expects the company's earnings growth in excess of 20% over the next two years, driven by: i) a threefold increase in its manufacturing capacity, with the commencement of a new Perak plant; ii) enlargement of its distribution network; and iii) expansion of retail touchpoints by setting up a 66% increase in smart colour POS tinting machines.
SAC is a home-grown manufacturer and distributor of paints and coatings, best known for its largest house brand, 'Smart Paints'.
In a note on Tuesday, the research house said contributions from the company’s manufacturing segment, which enjoys higher margins, had grown from 75% in the financial year ended Dec 31, 2020 (FY2020) to 94% in FY2023, and is expected to grow further with the commencement of the Perak plant by the second quarter of 2024, and tripling its annual manufacturing capacity from 8.7 million litres to 27 million litres.
“As of 1QFY2024 (the first quarter ended March 31, 2024), SAC’s balance sheet remained manageable, with a net gearing ratio of 0.5 times.
“[We rate the stock as a] 'buy', with a fair value of 49 sen, based on 13 times FY2025 earnings per share, a 30% discount to its peers’ average of 18 times price-earnings, due to its smaller market capitalisation,” the house said.