KUALA LUMPUR (Jan 19): UOB Kay Hian has set a target price of 65 sen for Coraza Integrated Technology Bhd, which is slated to list on Bursa Malaysia's ACE Market on Thursday (Jan 20).

The target price represents a 132.1% premium to its initial public offering (IPO) price of 28 sen, the research house said in a note on Wednesday (Jan 19).

According to the research house, the target price was derived from a multiple of 21 times price-to-earnings (P/E) for 2022, which is at a 50% discount to its industry peers' average forward P/E.

"Our P/E multiple yardstick implies an undemanding PEG (price/earnings-to-growth) ratio of 0.6 times given its multi-year growth story. Blue-sky valuation if pricing at 1x PEG ratio suggests a potentially higher target price of RM1.05 (at 34.6 times 2022F PE)," it said.

UOB Kay Hian added that the sheet metal fabrication firm is an attractive proxy to the booming tech sector, noting that it was on track to posting record revenue and profit for 2021, with higher contribution from the semiconductor sector coupled with improved operational efficiency.

According to the research house, the expanded capacity from its new factory and machinery will mostly be allocated towards serving semiconductor customers as well as new services to be offered later.

"As of November last year, the group had an outstanding purchase order of RM91.5 million to be fulfilled in 2022.

"The group has also maintained a good working relationship with its major customers which are the prominent players in the semiconductor, medical & life sciences as well as electrical & electronics sectors listed on the New York Stock Exchange.

"These customers are deepening their presence in Malaysia currently following the US-China trade diversion which would continue to benefit Coraza.

"We see multiple legs of growth that can supercharge a three-year revenue/core net profit CAGR (compound annual growth rate) of 17%/35%, riding on a strategic portfolio exposure, aggressive capacity expansion and growing relevance in major customers' high margin products.

Coraza is expected to raise RM33 million from its IPO exercise.

The company said that it will deploy RM15.5 million or 47% of its expected RM33 million IPO proceeds to purchase new machinery and equipment over the next three years for its existing and new factories in Nibong Tebal, Penang.

Coraza added that it has earmarked RM6.4 million or 19.5% of the IPO proceeds to part-finance the construction of the new factory, which is adjacent to its current factory and expected to have a total built-up area of approximately 91,110.1 sq ft. It said construction will be carried out in three phases and is targeted for completion by December 2023.

Meanwhile, the remainder of the proceeds will be utilised to repay bank borrowings of RM4.6 million (13.9%), extend its existing factory to add an additional area for capacity expansion costing RM1.5 million (4.6%), as well as procure and integrate a new enterprise resource planning system to streamline and automate its processes for more efficient operations while spending RM3.8 million (11.4%) on estimated listing expenses.

The group recently reported a net profit of RM3.52 million for its third quarter ended Sept 30, 2021 (3QFY21) against a revenue of RM28.13 million.

For the cumulative nine months ended Sept 30, 2021 (9MFY21), the group achieved a net profit of RM8.94 million against a revenue of RM71.33 million.

It said revenues for its 3QFY21 and 9MFY21 came mainly from its sheet metal fabrication segment, which accounted for RM24.2 million and RM61.3 million or 86% of both its quarterly and cumulative revenues, respectively.

Coraza provides a comprehensive range of services, which include fabrication of sheet metal, precision engineering components as well as provision of related services, such as design and development and value-added sub-module assembly to customers across a diverse range of industries, including semiconductor, instrumentation, life science and medical devices, as well as aerospace.

M&A Securities Sdn Bhd is the adviser, sponsor, underwriter and placement agent for Coraza's IPO.