PETALING JAYA: Despite a sluggish start to its new financial year, Sam Engineering & Equipment (M) Bhd’s long-term growth story remains intact and compelling, according to analysts.
The prospects of the precision machining, equipment integration and automation solutions provider would likely be driven by its aerospace and semiconductor segments, said the analysts.
In the immediate term, however, the road ahead will likely be bumpy for the company.
Hong Leong Investment Bank (HLIB) Research, for instance, was cautious about SAM Engineering’s short-term performance due to the ongoing inventory cycle in the semiconductor industry and the slowdown in data storage and electronics segments.
“While we think SAM Engineering is a highly rare secular growth stock, we remain wary for the global semiconductor industry is going through a cycle of inventory correction, and we are seeing a considerable slowdown in demand for both data storage and consumer electronics segments globally,” the brokerage said in its report yesterday.
“The group’s Thailand expansion will take some time before breaking even, albeit narrowing losses in each subsequent quarter,” it added.
HLIB Research said SAM Engineering’s exposure in both the ultra-fast-growing aerospace and semiconductor industries would be long-term complementary businesses to the group.
It maintained “hold” on the counter, with a higher target price (TP) of RM4.76 a share, compared with RM4.25 previously. The revised TP was pegged to a price-earnings multiple of 28 times, as compared to 25 times previously, to factor in the impressive recovery from the company’s aerospace segment over the past two quarters.
SAM Engineering’s net profit fell 12.7% to RM20.5mil, or 3.79 sen per share, for the first quarter ended June 30, 2023, from RM23.5mil, or 4.35 sen per share, a year ago, on impairment losses as well as higher operating and finance costs.
For the quarter in review, its revenue decreased 13% to RM307.89mil from RM353.97mil in the corresponding period a year ago.
CGS-CIMB Research said the results were in line with market expectations.
The brokerage reiterated “hold” on SAM Engineering, with an unchanged TP of RM4.95 a share.
“SAM Engineering is going through a lull, having put in investments for future growth,” CGS-CIMB Research said.
“Having prioritised the growth of its aerospace division since 2008, the new capacity expansion of its equipment division indicates that the company’s growth would be led by the equipment division and its exposure to the front-end semiconductor industry,” it added.