RHB and HLIB start coverage of Coraza

RHB and HLIB start coverage of Coraza
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KUALA LUMPUR (June 30): RHB Investment Bank Bhd has initiated coverage of Coraza Integrated Technology Bhd with a “buy” rating and target price of 82 sen based on 17 times price-earnings (P/E) for the financial year ending Dec 31, 2023 (FY23), a 41% upside.

In a note on Thursday (June 30), the research house said it likes Coraza for its solid growth path (three-year compound annual growth rate or CAGR: 29.2%), backed by an about one times healthy book-to-bill ratio and structural growth in semiconductor equipment demand.

RHB projects above-industry growth for Coraza, namely a 29.2% three-year earnings CAGR, supported by greater capacity on the back of business expansion to capture structural demand growth given its overall capabilities, operating excellence and long-term relationships with its clientele.

Also, it said the strategy of focusing on high-mix low volume and newer products from its front-end semiconductor clients should contribute to further margin growth, on top of benefiting from a strengthening US dollar.

“It has process know-how in varying complexities and exposure to the front-end semiconductor supply chain.

“Ongoing capacity expansion plans should enable Coraza to further improve operating efficiency and grow its market presence.

“Our 17 times target P/E is in line with its closest peers, but below the industry average,” it said.

Meanwhile, Hong Leong Investment Bank (HLIB) said Coraza will witness a multi-year growth from: i) Malaysia’s strong engineering supporting industries; ii) strategic portfolio exposures to the semiconductor, instrumentation, life science and medical devices and aerospace industries; and iii) a better product mix from major customers’ high-margin products.

In a note on Thursday, the research house said that moreover, the new factory with an additional 25% sheet metal fabrication capacity in FY24 should lift Coraza’s earnings to register a 22% CAGR for FY21-24 core profit after tax and minority interest (PATAMI).

“We value Coraza at 76 sen, ascribing 18 times P/E for FY23 earnings per share of 4.2 sen (a 26.7% upside),” it said.

At 10.13am, Coraza had gained 1.74% or one sen to 58.5 sen, with 668,200 shares traded.