Affin Hwang initiates coverage on MTAG with 'buy' call, TP of 75 sen

KUALA LUMPUR: Affin Hwang Capital research has initiated coverage on MTAG Group Bhd with a buy call and a target price of 75 sen.

MTAG is a key label and sticker-printing supplier, and mesh material converter for a global renowned household-appliance brand.

According to Affin Hwang, MTAG fulfils 60% to 70% share of the latter's requirements globally.

"Approximately 80% of MTAG’s revenue is contributed by the EMS companies, namely ATA IMS (BUY, TP: RM2.00), V.S. Industry (BUY, TP: RM1.60) and SKP Resources (Not rated, RM1.23), which serve this indirect key customer," it added.

There are strong barriers to entry owing to MTAG's technical expertise in niche printing and converting industry in the electrical and electronics industry over the last 23 years, said Affin Hwang.

It added that it likes MTAG for the less labour-intensive nature of its business.

Over the next three years, MTAG has plans to double its existing capacity by constructing a new integrated manufacturing plant and puchase new machineries.

"This will enable the group to cater to the growing demand of its existing customers, capture a larger share of the industry and improve efficiencies," said Affin Hang.

The research house expects MTAG's growth to be supported by its indirect key customer's new production introductions and application of higher-end materials.

Affin Hwang forecasts a CAGR of 13% for FY19-22E, led by the growth of its existing capacity.

"Currently trading at only 10x FY21E PER, we believe valuation looks appealing given its solid fundamentals, relatively high margin vs. its peers, low labor intensity requirements and high stock liquidity," it said.
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