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Thursday, March 22, 2018

Maybank Research starts coverage of MMS Ventures with buy call

Thursday, 22 Mar 201810:52 AM MYT

KUALA LUMPUR: Maybank Investment Bank Research has started coverage of MMS Ventures, which designs and manufactures customised semiconductor automation equipment, with a buy call and target price of RM2.02. The last traded price was RM1.37.

The research house said MMS Ventures has prominent clientele locally and globally and it is part of the supply chain for a prominent North American smartphone brand via its largest customer (25% of revenue), a global lighting MNC based in the Netherlands.

“MMS Venturess’ business model is scalable and has been gaining traction with new customers,” it said. The RM2.20 target price is based on 13.5 times CY19 EPS, 15% discount to regional equipment players and a 30% discount to its target price-to-earnings ratio (PER) peg for ViTrox (Sell).

Maybank Research said MMS Ventures runs a lean business by employing a flat organisation structure and flexible manufacturing model.

The company outsources its fabrication works, focusing only on high-value added process such as R&D, design & prototyping, and final testing & quality control.

This has enabled the company to adapt quickly to changing market demand, as illustrated in its 2017 performance.

“Meanwhile, high barriers to entry from extensive domain knowledge requirement, will cap competition and price erosion.

“Following a strong FY17, we expect MMS Ventures to see a 15% on-year earnings contraction in FY18 due to a slower capex cycle for one of its key clients and unfavourable US$/ringgit forex.

“Nonetheless, we project a strong earnings rebound in FY19 (+35% on-year) as MMS Ventures enters an upgrade cycle notwithstanding new automation projects.

“MMS Ventures has entered the ams AG’s supply chain via Globetronics (Hold) in 2017; ams AG has projected a 60% revenue CAGR in 2016-19.

“Though its clientele base and earnings potential are comparable to that of its closest peer, Elsoft Research

(Not Rated), MMS Ventures’s current valuation pales in comparison (FY19 PER of just 8.4 times vs 15.9 times for Elsoft).

“MMS Ventures’s proposed transfer in August 2017 from the ACE Market to the Main Market should nevertheless serve to enhance visibility among institutional investors to narrow this valuation gap.

“MMS Ventures’s attractive valuations (11 times CY18 ex-cash PER) also makes it a potential M&A target,” said Maybank Research.


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