PublicInvest Research values QES at 22 sen

KUALA LUMPUR: Public Investment Bank Research (PIVB) is valuing QES Group Bhd (QES), which is seeking a listing on the ACE Market, at 22 sen, which is three sen above its offer price of 19 sen.

The research house said QES’s core businesses is distributing inspection, test and measurement equipment, materials and engineering solutions for electrical and electronics, automotive and semiconductor industries. 

The group also manufactures optical inspection equipment, automated handling equipment as well as advanced wafer measurement system (AWMS) that are used in the semiconductor industry. 

Besides that, the group provides after-sales services such as training, repair and maintenance as well as upgrading services to its customers. 

At present, the Asean region is its principal market as the company focuses on aggressive organic growth to establish a stronger corporate profile and market presence in the industry both locally and internationally. 

“We value QES at 22 sen based on 10x FY2018F EPS, ascribing a 50% discount to average PER of 20.3x among selected test and measurement market players in Malaysia. 

“We reckon the steeper discount is warranted given QES’s small market capitalization relative to its peers. 

“The IPO is expected to raise approximately RM28.8mil from the issuance of 151.7 million new shares, with 37.2% of its proceeds to be utilised for capital expenditure and 16.8% of proceeds for development of three key improved products that are earmarked to drive future growth,” it said.

PIVB Research said QES’s growth will focus on i) development of advanced equipment that meet customers’ expectation, ii) expansion of recurring income segment, iii) diversification into new market segments for its product line-up, and iv) capital expenditure for productivity boost.   

It also pointed out QES’s competitive strengths include: i) being an established distributor for reputable brands of equipment, ii) exclusive distribution rights, but independent of any single supplier iii) large customer base from diverse industries, iv) widely spread distribution network across most of the ASEAN region, v) experienced technical team and management team, and vi) quality assurance for manufactured product. 

The catalysts for business growth include: i) improvement in global economy, ii) increasing electronic content, iii) expansion in broad range of key end-user markets as well as a supply side supported by government efforts, and iv) high commitment on research and development activities among market players to roll out newer test and measurement products. 

However, the key downside risks, among others, include i) competition risks and changes in technology, ii) foreign operations risks and fluctuation in foreign exchange rate, iii) product warranty risks, and iv) dependency on adequate financing to fund operations.