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Tuesday, June 17, 2014

More upside for Elsoft Research’s LED business, eyes medical devices


KUALA LUMPUR: Affin Investment Research sees more upside for Elsoft Research, which is a light-emitting diode (LED) automated test equipment manufacturer, as it seeks to venture into embedded systems for medical devices.
It said on Monday Elsoft was exploring the design and development of embedded systems for medical devices used to analyse fluid samples such as urine and blood.
"Management believes it can leverage its expertise in embedded systems for LED test equipment and collaborate with medical specialists to undertake the new business.
"Management remains positive that this could be the next growth driver for the group. Currently, the embedded systems are at the qualification stage," it said in a research note.
Elsoft is an automated test equipment manufacturer for camera modules used in the mobile phone and auto industries.
To recap, Elsoift is listed in 2005 on the ACE market, the company registered revenue of RM25.2mil (up 34% on-year) and core net profit of RM10.6mil (+62% yoy) in FY13. Elsoft's key customers include Philips, a global market leader in the LED segment.
In April 2014, the group secured a major contract worth RM25mil for LED test equipment. This contract alone was as large as its FY13 revenue.
Affin Research said the management expects the contribution from the order to kick in from 3Q14 and be a key driver for FY14-15 earnings. The management believes it can secure new test-equipment orders in 2H14, given strong market demand.
The research house is maintaining its "Not rated" recommendation on Elsoft based on financial year 2014/2015 estimates  (FY14-15 E), price-to-earnings ratio of 12.8 times and 10.4 times respectively.
Based on Bloomberg-consensus forecasts, its closest peer, Vitrox Corp Bhd, price-to-earnings ratio on FY14-15E of 13.9 times and 12.3 times.
Elsoft recorded revenue of RM25.2mil and core net profit of RM10.6mil in financial year 2013 (FY 13).
This year, it bagged a contract worth RM 25mil for light-emitting diode (LED) test equipment, which is as large as its FY13 revenue.
The research house believes that the contribution from the order would be a key driver for FY14-15 earnings, which would possibly start in the third quarter of this year.
However, in the second half of this year it would be able to secure new test-equipment orders, which is a strong market demand.
"Elsoft is taking measures to diversify to reduce its dependency on the relatively volatile LED market," it said.

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