Recovery in global chip industry to benefit SAM

HLIB Research said SAM’s aerospace business turned the corner in the third quarter.

PETALING JAYA: Sam Engineering & Equipment (M) Bhd’s core businesses are set to benefit from a recovery in the global semiconductor and aerospace industries.

According to HLIB Research, the semiconductor industry is recovering from the inventory correction cycle while global air passenger travel has recovered to pre-Covid-19 pandemic levels.

While it has indicated short-term soft demand from the chip sector due to broad base inventory adjustments and underutilisation, its aviation business is set to grow, said the research house.

“SAM’s aerospace business turned the corner in the third quarter, ended Dec 31, 2023, as aircraft manufacturers have announced their plans to increase production rates to clear huge backlogs.

“To mitigate the supply chain pressure, SAM’s strategic plan to set up aerospace manufacturing capabilities in Thailand is underway,” the research firm noted in a report on the company.

The outlook for the aviation sector seemed promising after a record 2023 for commercial aviation with aircraft deliveries rising 11% to 1,263 units, while net new orders rose 146% to 3,432 units, leading to a 16% rise in order backlog to 14,814 units.

On top of that, SAM’s production facility in Ban Bueng, Thailand, had obtained AS9100 certification, the research firm added.

HLIB Research added that the consolidation of recently acquired aircraft structure parts and precision engineering components manufacturer Aviatron (M) Sdn Bhd is projected to elevate SAM’s aerospace revenue contribution from 23% to 35%.

“With Aviatron, SAM is positioned to venture into the aircraft structure business. It will complement SAM with new capabilities in new aircraft platforms, new engineering know-how and new competencies in non-destructive testing and special processes and assembly,” HLIB Research noted.

Despite the promising outlook for the businesses, HLIB Research has downgraded SAM to “hold” from “buy” with an unchanged target price of RM4.92 a share, pegged to a target price-to-earnings multiple of 28 times following its share price rally since early January.

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