HIGHER-THAN-EXPECTED order book replenishment for its electric vehicle (EV) & energy storage (ES) and e-mobility segments will likely serve as a potential re-rating catalysts for high-flying ACE Market counter Genetec Technology Bhd.
Other key catalysts that will brighten up the company’s prospect include a rise in institutional funds’ holdings, expansion into new customers or verticals, and potential interest as an ESG (environmental, social and governance) play, according to CGS-CIMB Research.
“Meanwhile, lower order book replenishment due to delays in customers finalising their plans and appreciation in the ringgit against the greenback are potential downside risks to our call,” suggested analysts Mohd Shanaz Noor Azam and Walter Aw in a results review.
CGS-CIMB Research noted that Genetec’s 4Q FY6/2022 core net profit came in at RM13.6 mil (5.7 times year-on-year [yoy]), thus bringing its FY6/2022 core net profit to RM56.4 mil (+34.8 times yoy).
This beat its expectation by 4% and Bloomberg’s consensus by 3%. The improved earnings in 4Q FY6/2022 was due to better-than-expected profit margin delivery.
Against such bullish outlook, the research house has reiterated its “add” rating on Genetec with a higher target price of RM4.50 which is 40 times the company’s CY2023F price-to-earnings ratio (P/E) or 1 standard deviation above the Malaysian automated test equipment sector mean P/E of 30 times.
“We raise our FY6/2023-FY6/2024F EPS (earnings per share) by 4%-6% to reflect a higher profit margin for Genetec’s ES & EV orders, and introduce our FY6/2025 estimates,” CGS-CIMB Research pointed out.
“The stock has fallen 20% YTD (year-to-date) mainly due to weak sentiment in the global technology sector. In spite of the pullback in its share price, we still like Genetec’s long-term growth prospects, riding the structural shift towards EV and sustainable energy.”
The research house further estimated that Genetec’s order backlog hovered at RM240 mil-RM250 mil as of end-March 2022 driven by healthy order replenishment from EV & ES and e-mobility segments.
“We see higher potential for order wins for its e-mobility segment in FY6/2023F in view of the aggressive push from German automakers like Mercedes towards electrification and autonomous driving assistance (ADAS) adoption,” added the research house.
At 11.11am, Genetec was down 2 sen or 0.82% to RM2.42 with 10.43 million shares traded, thus valuing the company at RM1.65 bil. – May 27, 2022
