SFP Tech on a roller-coaster ride

WHEN it was first listed on June 20, 2022 on the ACE Market, engineering firm SFP Tech Holdings Bhd saw its share price rocket by 123% to 67 sen from 30 sen on the first day.

The good run continued throughout the year and by Nov 30, 2022, SFP Tech’s share price hit RM1.74 per share, translating into a massive market capitalisation of RM1.39bil.

Analysts covering the stock were calling it a screaming “buy”, noting the company was on a roll, with good growth prospects.

But that was more than two years ago. Today, the picture is quite different. The stock now trades at a paltry 26 sen, giving it a market capitalisation of RM608mil.

Two weeks ago, SFP Tech, which provides machining and mechanical assembly services and automation equipment to the semiconductor industry, sank into the red for the first time.

The company booked a RM21.33mil net loss in the fourth quarter ended Dec 31, 2024 (4Q24), against a RM7.37mil net profit in the same quarter a year ago. The losses stemmed from provisioning from an expected credit loss related to a large semiconductor customer.

Soon after, UOB Kay Hian (UOBKH) Research ceased coverage of the stock. UOBKH Research had earlier forecast a net profit of RM45.1mil for SPF Tech for financial year 2024 (FY24). Instead, SPF Tech posted a full-year net profit of only RM9.7mil.

Earlier this week, SFP Tech said it has now decided to walk back on its plan to transfer to the Main Market of Bursa Malaysia.

In written replies to StarBiz 7, more light was shed on what has gone wrong.

On the unexpected provisioning in the latest quarter, SFP Tech group managing director and major shareholder Keoh Beng Huat says: “This is an expected credit loss provision which is mandated under accounting standards for potential credit losses on financial resources such as trade receivables.

“It is not a realised loss, but merely a provision made in the event if the receivables are not collected within a stipulated time frame”.

Keoh adds that SFP Tech had begun engaging with the particular customer in 2023 and payments were prompt. SFP Tech had only faced delayed collection starting from the 2Q24, due to the tightening of monetary regulations by the customer’s homeland.

The customer could not be named due to confidentiality issues.

“Suffice to say this is a huge entity with several businesses. Prior to acceptance of the business relationship, we performed due diligence and visited the factory in their homeland,” he explains.

SFP Tech’s trade receivables ballooned to RM102mil as at 4Q24, compared with RM60mil the year before.

Meanwhile, Affin Hwang Research points out in its latest research report that the troublesome customer is a “Chinese (semiconductor) front of line customer”.

In its previous report following SFP Tech’s 3Q24 results, the research house had pointed out that the fourth quarter would likely be a “transition quarter” for SFP Tech as the company “phases out its Chinese front-end customer by the end of the year”.

Following the release of SFP Tech’s 4Q24 results, Affin Hwang Research has lowered its target price for SFP Tech to 58 sen, while maintaining its “buy” call.

Keoh remains sanguine about his company’s prospects, noting that the tech industry continues to see growth and that SFP Tech is receiving new orders.

He says he is working with “high echelon decision makers from various international multinational corporations”.

“By dealing with higher management, the level of deals we are going through are those that require a stringent selection processes. Once the engagement is confirmed and awarded, it will be for the long term, securing us businesses for future years.

“Local financial institutions have gone through our financial books and outlook, which has given them security and confidence. Hence, we were offered a substantial financing amounting to more than RM300mil for business expansion,” Keoh adds.

The company remains confident that 2025 will be its best year yet.

“While we are not able to control the geopolitical issues that are happening such as US tariffs, the group continues to see new deals coming in,” he says.

According to Keoh, the company has consistently prioritised joint venture and merger and acquisition activities, with a primary focus on establishing an international presence and expanding its global footprint.

Its first foray into the overseas markets was through the incorporation of its wholly-owned subsidiary, SFP Integration, in Singapore last year.

Now, the company is looking to acquire another business, which Keoh says will bring the group beyond Asia, and give SFP Tech a presence in three continents.

Last year, SFP Tech completed its Manufacturing Plant 3 at Penang Science Park, tripling its total current built-up area.

“We are expanding our capabilities and capacities in response to the projected order ramp delivery in the engineering supporting services and automated equipment solutions divisions.

“We have been offered a sizeable land by Penang in 2024 where the future Manufacturing Plant 4 will be constructed,” Keoh says.

While Hong Leong Investment Bank Research expects SFP Tech’s near-term performance to be weak, the research house projects the group to gradually recover over the long term.

“This is thanks to the positive contribution from its subsidiary, EST Exhibit Automation Sdn Bhd, completion of Manufacturing Plant 3 and the addition of 41 new CNC milling machines over the next three years,” the research house stated.

Affin Hwang Research has lowered its FY25 to FY26 earnings forecasts by 21% to 25%. This was mainly to account for the postponement in the completion of a new cleanroom as well as order delays due to trade tariff uncertainties.

“The key rerating catalysts for the stock lies in contribution from its front of line production (a critical structural driver for future growth) and ability to collect the outstanding receivables.

“Downside risks are a prolonged semiconductor downturn, slower orders from key customers, execution risks, and shortage of talent,” it said.