Kenanga Research has trading buy FV of 26 sen for QES

KUALA LUMPUR: Kenanga Investment Bank Research has a trading buy on QES Group Bhd with a fair value of 26 sen, which is seven sen above its offer price of 19 sen.

QES, which manufactures optical inspection equipment, automated handling equipment and advanced wafer measurement system, will make its debut on the ACE Market of Bursa Malaysia on Thursday, 

The research house said QES is expected to register a two-year CNP CAGR of 15%, underpinned by; (i) strategic exposure in high growth segments as well as its wide customers and installed base (distribution division), and (ii) incremental sales with new products from higher-margin manufacturing division.

QES is principally involved in the distribution of inspection, test and measurement equipment, materials, and engineering (87% of FY17 revenue) as well as manufacturing of optical inspection equipment and automated handling equipment (13% of FY17 revenue). 

To date, QES has more than 2,400 customers and installed base of  more than 8,000 units of equipment spreading across Asean and Malaysia with customers in E&E, automotive and semiconductor Industries.

Kenanga Research said QES has registered a three-year revenue/CNP CAGR of 22%/47%, which have significantly outperformed the mid-single digit growth of global/Malaysia’s test and measurement market. 

These were all on the back of its strategic exposure in high-growth sectors and resilient ASEAN market (which experienced higher growth in the recent years). 

“Going forward, the global/Malaysia’s test and measurement markets are widely expected to grow at a five-year CAGR of 5.7%/6.9% in 2021,” it said.

The research house pointed out that this was due to demand in telecommunication (wider adoption of 4G/new 5G technology), semiconductor (IoT as well as electronic devices) and Automotive (higher electronic content) - all sectors that QES has exposure in. 

With QES’ (i) established customers and wide installed base, (ii) meaningful estimated market share of 9.2% in FY17 (among the listed ATE players) coupled with (iii) its strong portfolio exposure to MNC’s customers, it believes QES’ growth will continue to outpace the positive industry trend, which should support its conservative two-year revenue CAGR assumption of 13%.