KUALA LUMPUR (March 14): Ahead of Oppstar Bhd’s listing on the ACE Market on Wednesday (March 15), UOB Kay Hian has initiated coverage on the integrated circuit (IC) design service provider with a 'buy' call and a target price (TP) of RM2.28.

UOB analyst Desmond Chong said he derived his valuation on Oppstar, the first-ever listed local IC design house, based on 50 times forecasted FY2024 price-to-earnings ratio (PER).

“As there is no comparable local listed peers for valuation purposes, our valuation yardstick is based on a 10% premium of its global peers’ average two-year forward PER,” he said in a note on Tuesday.

Touching on Oppstar’s initial public offering (IPO) price of 63 sen — which is valued at 19.6 times FY2023 PER — Chong said the research house sees ample upside and expects a three-year net profit compound annual growth rate (CAGR) of 35% from FY2022, at an undemanding price-to-earnings to growth (PEG) ratio of 0.5 times.

“Blue-sky valuation if pricing at two times PEG ratio (average peak PEG valuation of tech names during the tech run in 2021) suggest potentially higher TP of RM3.20 (at 70 times FY2024F PER).

Chong said Oppstar is to benefit from the US-China tech war given that Washington banned IC design giants AMD and Nvidia from exporting their advanced AI ships to China due to potential military use.

“Capitalising on the geopolitical neutrality, we believe Oppstar has the upper hand. It is noteworthy that Oppstar has secured its first AI ASIC projects from China customers in 2020 and has received enquiries from its China customers on specific design and turnkey design services.

“In terms of market share, by looking at the size of global IC design sales (2021: RM819 billion), Oppstar’s revenue of RM50.5 million was only at a meagre 0.0062%,” he said.

In comparison, PublicInvest Research on March 3 pegged a fair value of 92 sen on Oppstar based on a 23 times PER to its FY2024 forecasted earning per share of four sen.

Last week, Oppstar announced that its shares offered to the public under the IPO were oversubscribed by 77.05 times, with 39,103 applications for 2.48 billion shares received for the 31.81 million shares made available.

The 22.27 million shares made available for its eligible directors, employees, and business associates were fully subscribed, while the 31.88 million shares made available for application by way of private placement to selected investors were also fully taken up.

The 79.53 million shares made available to Bumiputera investors approved by the Ministry of International Trade and Industry by way of private placement were also fully subscribed.