KUALA LUMPUR (Sept 23): Mercury Securities has projected a fair value of 55 sen per share to ACE Market-bound semiconductor sector service provider Crest Group Bhd, on the back of expected earnings growth in the coming two years underpinned by its growing regional footprint.
This compares with Crest’s initial public offering (IPO) price of 35 sen per share, of which applications will close on Wednesday.
The valuation is based on a 20 times price-earnings ratio (PER), premised on earnings per share (EPS) of 2.7 sen for the financial year ended Dec 31, 2023 (FY2023), Mercury said.
“Our target PER is based on a 20% discount to the average valuation of its peers, to account for its smaller market capitalisation," the house said in a note on Monday.
The research house forecast Crest’s revenue to grow 8%-13% to RM201.7 million in FY2024, RM227.2 million in FY2025, and RM249.1 million in FY2026.
This is on the back of anticipated recovery of the global semiconductor industry, coupled with the China+1 strategy seen benefiting the Asean market Crest is in, as well as continued strong sales by the company in China.
However, EPS are expected to decline from 2.5 sen in FY2023 to 2.3 sen in FY2024, before rebounding to 2.7 sen in FY2025 and three sen in FY2026, based on Mercury's forecasts.
"Looking ahead, we anticipate that Crest will be able to uphold its gross profit margin at 29%, as the global semiconductor industry continues to recover and the ringgit strengthens further," Mercury said.
" Unlike some of its listed peers, Crest is a net beneficiary of a stronger ringgit, as only 60%-70% of its sales are denominated in foreign currencies, compared to over 90% of its costs (mainly equipment purchase costs)," the house added.
At 35 sen per share, Crest's IPO values it at an annualised FY2024 PER of 25 times and FY2023 PER of 15.1 times, said CGS International Research in a separate note.
"Meanwhile, the Bursa Malaysia Small Cap Index and Bursa Malaysia Industrial Products and Services Index’s FY2023 PERs stood at 18.3 times and 33.9 times respectively," the house said, citing Bloomberg data.
Crest is a net cash company with a net cash position of RM32.5 million or 3.8 sen per share as at end-April. The group is raising RM45.75 million via the issuance of 130.71 million new shares to open new offices in Vietnam, Thailand and China, with the rest to upgrade its equipment, establish a new headquarters in Selangor, and expand its operations team.
The group's shareholders will also offer to sell 103.98 million shares for RM36.36 million. The substantial shareholders include group managing director Lim Siong Wai, who will own a 24.7% stake post IPO, followed by executive directors Au Chun Mun and Yap Kian Meng (each to hold 23.8% respectively).
For the four months of January to April 2024 (4MFY2024), the group posted a profit after tax of RM2.93 million, on revenue of RM49.52 million.
Meanwhile, profit after tax came in at RM20.1 million in FY2023, on revenue of RM187.62 million.