PETALING JAYA: Better prospects for the main businesses of Sam Engineering & Equipment
(M) Bhd have sent its shares sharply higher following a big brokerage initiating coverage on the stock.
SAM, which is involved in front-end semiconductors and the aerospace business, is seen as a “secular growth stock with high-quality end clients”, had Maybank Investment Bank (Maybank IB) Research point out that the company was well positioned to capitalise on the expected cyclical recovery of both the aerospace and front-end semiconductor sectors.
As a result, shares of SAM jumped by over 7% yesterday, adding on the uptrend seen since February, with Maybank IB Research calling the stock a “buy”.
Maybank IB Research has set a target price of RM6.05, which represents a premium of 9.2% from yesterday’s closing price of RM5.54.
SAM, a contract manufacturer that makes aircraft parts and electronic components, is controlled by Singapore state-owned Temasek Holdings Pte Ltd, with a stake of 55.2%.
The stock has shot up by nearly 40% year-to-date, bringing its market capitalisation to RM3.8bil.
In a note, Maybank IB Research described SAM as a “secular growth stock with high-quality end clients”, pointing out that the company is well positioned to capitalise on the expected cyclical recovery of both the aerospace and front-end semiconductor sectors.
SAM has two operating segments, namely aerospace and equipment. In financial year 2023 (FY23), the aerospace segment contributed 23% of revenue, while the equipment segment generated the remaining 77% revenue.
SAM’s equipment segment has three main clients – Customer X and Y (front-end) and Z (back-end), all of which have Taiwan Semiconductor Manufacturing Company Ltd (TSMC) as their top-paying customer.
TSMC controls 61% of the global foundry market share, according to market research firm Counterpoint, and the company makes roughly 90% of the world’s advanced chips.
“Various studies have implied a record-high capital expenditure on wafer fab equipment in 2025, implying that we may soon see an inflection point.
“Meanwhile, its aerospace segment’s end clients are Airbus and Boeing.
“Since the fourth quarter of FY23, SAM’s aerospace division has been consistently raking in profits, signifying that the unit is finally out of the woods after being in the red in FY21 and FY22.
Also, SAM’s recent acquisition of Aviatron will help boost the unit’s profitability and margins from FY25 onwards,” stated Maybank IB Research.
Looking ahead, the research house projected a strong three-year FY23 to FY26 core net profit compound annual growth rate of 20% for SAM.
This is on the back of the consolidation of Aviatron’s financials from end-Feb 2024 and a steady annual improvement in the group’s aerospace sales from record-high backlog orders, coupled with gradual ramp-up of its Ban Bueng Plant 2 plant.
In addition, SAM is also supported by a gradual and steady recovery in orders in the first half of FY25 (1H25) for front-end semiconductor customers, followed by back-end customers in 2H25; as well as commissioning of its Rojana Plant 2 (RJ2) and Ban Bueng Plant 1 (BB1) plants for its equipment segment.
“We estimate RJ2 and BB1 have a revenue potential of about RM800mil annually.”
