Oppstar IPO offers good value for money

PETALING JAYA: Oppstar Bhd stated it has secured more specific design service requests as it reported a net profit of RM4.46mil for the third quarter ended Dec 31, 2022 (3Q23), taking its nine-month (9M23) cumulative net profit to RM14.85mil or earnings per share of 2.33 sen.

In a filling with Bursa Malaysia yesterday, Oppstar stated its net profit for 9M23 accounted to about 89% of the RM16.61mil net profit it made in financial year ended March 31, 2022 (FY22).

The group’s revenue stood at RM14.61mil and RM43.42mil for 3Q23 and 9M23, respectively. The group’s total revenue of 80% was contributed from its turnkey design services from the group’s customers based in China and Malaysia.

There are no comparative figures for the preceding year’s corresponding quarter as this is the first interim report being announced by the company in compliance with the listing requirements.

Oppstar executive director and chief executive officer Ng Meng Thai said the robust financial results showcased the group’s resilience in navigating the market fluctuations.

“Our financials are mainly attributed to the strong demand for integrated circuit (IC) design service, which has propelled us towards a positive growth trajectory,” he said.

Meanwhile, RHB Research has derived a fair value of RM1.12 per share for ACE Market-bound Oppstar, a substantial premium over its initial public offering (IPO) price of 63 sen a piece.

The research outfit believes Oppstar, an IC design services provider, is capable of capturing a big market share in line with its expansion plans upon going public.

Oppstar intends to raise RM104.3mil by going public to primarily fund its expansion, research and development as well as working capital expenses.

It will be the first IC design house to be listed on Bursa Malaysia (on March 15) and has earmarked 48% or RM50mil of the proceeds for the expansion of its workforce.

The group is hoping to extend its presence in India, Singapore and Taiwan within the next 36 months after the listing exercise.

RHB Research, in a report on the company, stated there is still a lot of market share for Oppstar to capture and its expansion plans would enable it to on-board new customers and increase its market presence, especially in Singapore and Taiwan.

This is due to its close proximity to some global foundries including Taiwan Semiconductor Manufacturing Co Ltd, United Microelectronics Corp, Infineon Technologies AG, Intel Corp and Qualcomm Inc.

“Its India office allows the group to tap into talent there, to upgrade its design capability and capacity. Due to the capacity bottleneck, Oppstar intends to double its number of engineers in order to take on more projects and win new customers,” RHB Research said, adding Oppstar has 217 engineers currently.

In a separate research report, Maybank Investment Bank (IB) Research said India and Taiwan have established an IC design industry, while Singapore is home to many multinational corporations and foundries.

“Expanding in the respective countries will allow Oppstar to be in close proximity to existing and potential customers. These, in turn, will help increase its market presence,” Maybank IB Research highlighted.

Owing to Oppstar’s strong working relationship with China customers and its good track record, RHB Research has forecast a three-year earnings compound annual growth rate (CAGR) of 20.2% for FY22 to FY25.

“The group’s three-year earnings CAGR of 20.2% (FY22 to FY25) should be driven by its design capabilities, workforce and geographical footprint expansions, development of own intellectual property (IP), as well as large addressable market share,” it noted.

In the past three financial years, Oppstar registered a three-year CAGR revenue growth of 78%, mainly attributable to increased contributions from its turnkey design services, particularly for its major customer Xiamen KirinCore, which accounts for 68.4% of revenue, the research firm said.

“Oppstar also booked a three-year CAGR earnings growth of 528.5%, thanks to margin improvements. The gross profit margin improvement was mainly due to a better product mix, as it secured more turnkey design services, and higher utilisation of its skilled labour resources,” RHB Research pointed out.

It added Oppstar, which sits on a net cash of 20 sen per share, has a dividend payout policy of 25% of profit after tax which translates to dividend yields of 1.5% and 1.8% in FY24 and FY25, respectively.

Maybank IB Research noted that Oppstar could trade at an historical FY22 price-to-earnings ratio (PER) of 24.1 times, at its IPO price of 63 sen per share.

“When annualised, Oppstar would trade at 19.3 times annualised first half of its FY23’s earnings per share of 3.3 sen. In comparison, the Bursa Malaysia Technology Index trades at a prospective 2023 PER of 20.4 times,” Maybank IB Research highlighted.

Oppstar has an order book of about RM34.3mil, as at end of January 2023, which expected to be recognised in the next 12 months.Maybank IB believes demand for IC design will be driven by these continuous technological advancements leading to innovation in end user products and the growing demand for advanced chips used in high performance computing and artificial intelligence devices which are less susceptible to rising inflation and external uncertainties.

Oppstar has earmarked 24% or RM24mil of its IPO money for the establishment of new offices. It also intends for utilising 11.5% or RM12mil for research and development expenditures and 12.1% or RM12.65mil for working capital.