Friday 29 Mar 2024
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KUALA LUMPUR (March 30): RHB Investment Bank Research has downgraded Coraza Integrated Technology Bhd to “neutral” at 87 sen with a lower target price (TP) of 87 sen (from RM1.04) after the company proposed a private placement of up to 20% of total number of issued shares, potentially raising up to RM69.5 million in multiple tranches. It has also proposed a long-term incentive plan of up to 10% of the total issued share capital over five years.

In a note on Thursday (March 30), the research house said it was neutral on the proposals, given the potential near-term share price overhang and dilution to earnings per share, but believed the funds raised to finance expansion and facility upgrades could accelerate and capture various growth opportunities.

RHB said despite current inflationary challenges and softening demand from the semiconductor space, especially in the first half of 2023, Coraza’s management remains cautiously optimistic and will continue to explore opportunities to expand the existing portfolio to a more diversified customer exposure.

“New project wins from the aerospace, telecommunications, and instrumentation industries will help to cushion the demand volatility.

“Moving forward, margins may improve from stabilising raw material prices, operational efficiencies, and a favourable product mix, along with the ongoing cost pass-through exercise,” it said.

The research house said its forecasts are unchanged, except for the minor effects from tweaking our capex assumptions.

“We assume the maximum scenario dilution from the proposals resulting in a lower TP of 87 sen (RM1.04 [previously]), based on unchanged FY2023 forecasted fully diluted price-earnings of 20 times (a discount to industry peer average of circa 30 times) and after applying a 2% ESG (environmental, social and governance) discount, based on our proprietary ESG methodology.

“Key risks: Dependence on major customers, labour shortages, FX rate fluctuations,” it said.

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