KUALA LUMPUR: Rakuten Trade is recommending investors 'Buy' electronic manufacturing services (EMS) provider, Cape EMS Bhd, assigning a target price of RM1.37 to the share.
Cape EMS' share price is currently trading 1.5 sen higher at 88.5 sen.
(CEB) is expected to report net earnings of RM68.2 million and RM85.8 million for the financial year 2024 (FY24) and FY25 respectively.
Rakuten Trade vice president of research Thong Pak Leng said FY24 holds exciting prospects for CEB, for its wireless communication business to support 5G growth and data centers, electric vehicle (EV) segments, as well as electronic cigarettes.
He added that one of CEB's customers, Mimosa Network, has successfully expanded into new markets and customer segments. "This achievement reinforces Mimosa's ongoing commitment to channelling higher orders to CEB within the wireless communication segment. "We estimate that CEB is on track to fulfil our FY24 order forecast assumption, with delivery anticipated over the next six months," he said in a note.
Thong said the company's financial leverage is manageable, with a net gearing of 0.4 times as of Dec 31, 2023, and an interest coverage ratio of more than seven times.
He also said that the acquisition of iConn Inc by CEB, set to be completed by the first quarter of FY24 (1QFY24), aims to integrate design and engineering capabilities, especially in the EV segment.
He noted that this strategic move is expected to enhance and diversify the range of services in its EMS segment.
CEB has concluded the pilot run for its customers and is currently in the process of obtaining qualification for its production line, with mass production scheduled for 2QFY24.
CEB's recent joint venture with Vectrix (with CEB holding an effective 60 per cent equity stake) for the manufacturing and design of battery swap stations for e-bikes is progressing on schedule, with production set to start in 2Q24.
The company has also recently increased the capacity for its e-cigarettes designed for a customer in response to increasing demand, by completing sub-line installations on existing machines and is poised to accommodate higher volumes from its customers in the months ahead.
The company has expanded its Tebrau 6 factory, measuring 100,641 square feet. Ten new aluminium die-cast production lines commenced operations in Dec 2023. Meanwhile, machinery in progress includes nine units of robotic pick and spray equipment, two units of CNC lathe machines, and three units of rotary screw air compressors.
CEB is also planning to build a warehouse at Senai, measuring 166,917 sq ft., to house finished goods for electronic manufacturing services (EMS) operations and, thus, free up storage floor space in Senai 227 factory for the expansion of EMS operations.