RESULTS UPDATE

Friday, August 25, 2023

Sector: Industrial Products & Services

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

Coraza Integrated Technology Berhad TP: RM0.865 (+32.1%)

Last Traded: RM0.655
BUY (ESG: ★★★)
1HFY23 Dragged by Chip Industry’s Downcycle
Wilson Loo, CFA Tel: +603-2167-9606 wilsonloo@ta.com.my www.taonline.com.my

Review 1 Share Information

Bloomberg Code CORAZA MK
• Coraza’s 1HFY23 core net profit of RM1.0mn (-85.9% YoY) came within 8
Stock Code 0240
ours but below consensus full-year estimates at 23.0% and 11.6% Listing Ace Market
respectively. We expect the group’s performance to improve in 2HFY23 Share Cap (mn) 429.2
as its customers’ inventory glut eases. Market Cap (RMmn) 281.1
52-wk Hi/Lo (RM) 1.16/0.61
• YoY. 1HFY23’s core net profit sank 85.9% YoY to RM1.0mn as revenue 12-mth Avg Daily Vol ('000 shrs) 4361.4
declined 28.5% YoY to RM49.3mn. The weaker revenue was attributed to Estimated Free Float (%) 27.9
the ongoing deferral of orders from customers within the semiconductor Beta -
industry amid an inventory glut. The lower utilisation coupled with Major Shareholders (%)
additional fixed costs for expansion of capacity and capability led the core Paul Heng Weng Seng - 48.2%
Liew Sow Ying - 19.2%
net profit margin to narrow 8.4pp YoY to 2.1%.
• QoQ. 2QFY23’s core net profit declined 19.4% QoQ to RM0.5mn with Forecast Revision
FY23 FY24
revenue lower 26.3% QoQ to RM20.9mn. The semiconductor industry's
Forecast Revision (%) - -
cyclical downturn affected revenue, which declined QoQ for the 3rd Net profit (RMm) 4.4 16.9
straight quarter. Consensus 8.8 17.8
TA's / Consensus (%) 50.1 94.8
Impact Previous Rating Buy (Maintained)
• We maintain our earnings estimates. Consensus TP (RM) 0.87

Scorecard (%)
Outlook % of FY
• Amid the semiconductor industry’s cyclical downturn, we expect Coraza’s vs TA 23.0 Within
to continue observing a softness in 2HFY23, albeit with improvements vs Consensus 11.6 Below

relative to 1HFY23 as its customers’ inventory glut eases. Financial Indicators

FY23 FY24
• Notwithstanding, with the semiconductor industry poised for an eventual Net Gearing (%) Net cash Net cash
rebound, Coraza remains focused on its expansion plans and new product CFPS/share (sen) 6.2 3.8
P/CFPS (x) 10.5 17.3
introduction process as it seeks to capitalise on the next upcycle.
ROE (%) 4.8 16.1
According to the Semiconductor Equipment and Materials International NTA/Share (RM) 0.2 0.2
association, global sales of semiconductor manufacturing equipment are Price/NTA (x) 3.0 2.7
forecasted to rebound from US$87.4bn (-18.6% YoY) in 2023 to nearly
Share Performance (%)
US$100bn (+14.4% YoY) in 2024. Price Change CORAZA FBM KLCI
1 mth (13.8) 2.2
• Coraza’s capacity expansion plans include: i) the recently proposed 3 mth (13.2) 2.3
acquisition of a ready-built 52,000 sq ft factory in Penang, and ii) the 6 mth (33.8) (0.9)
construction of a new 91,110 sq ft factory in Penang estimated for 12 mth (18.6) (2.6)

completion in 3QCY24.
(12-Mth) Share Price relative to the FBMKLCI

Valuation & Recommendation

• In all, we maintain our Buy recommendation on Coraza with a TP of
RM0.865 based on 22.0x CY24F EPS. Beyond expectations for a transitory
slowdown in FY23, we view that Coraza is poised for a rebound once the
tide for the semiconductor industry turns.

• We like Coraza for its medium-to-long term earnings growth prospects

Source: Bloomberg
backed by its expansion plans, exposure to high-growth industries,
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 25-Aug-23
including semiconductor and instrumentation, and established relationships
with multinational corporations.

• Key downside risks include i) dependence on major customers, ii) raw

material price fluctuations, and iii) geopolitical tensions both weighing on
economic growth and disrupting supply chains.

Table 1: Earnings Summary (RMmn)

FYE Dec (RM mn) FY21 FY22 FY23F FY24F FY25F
Revenue 106.1 143.3 114.7 146.2 175.5
EBITDA 20.2 28.5 15.5 32.2 39.5
EBITDA margin (%) 19.0 19.9 13.5 22.0 22.5
Dep. & amortisation (3.4) (6.3) (9.3) (9.7) (10.0)
EBIT 16.8 22.2 6.2 22.5 29.5
Net finance costs (0.8) (0.4) (0.4) (0.3) (0.1)
EI 0.1 (3.2) 0.0 0.0 0.0
PBT 16.1 18.6 5.8 22.2 29.4
Taxation (3.2) (3.9) (1.4) (5.3) (7.0)
PAT 12.8 14.7 4.4 16.9 22.3
Core PAT 12.8 17.2 4.4 16.9 22.3
Core EPS (sen) 3.0 4.0 1.0 3.9 5.2
Core EPS Growth (%) 94.6 34.1 (74.3) 282.5 32.2
PE (x) 22.0 16.4 63.7 16.7 12.6
DPS (sen) 0.0 0.0 0.3 1.0 1.3
Dividend yield (%) 0.0 0.0 0.4 1.5 2.0

Table 2: 1HFY23 Results Analysis (RMmn)

FYE Dec (RM mn') 2QFY22 1QFY23 2QFY23 QoQ (%) YoY (%) 1HFY22 1HFY23 YoY (%)
Revenue 34.5 28.3 20.9 (26.3) (39.5) 68.9 49.3 (28.5)
- Fabrication of sheet metal 29.1 25.4 19.9 (21.8) (31.7) 57.4 45.2 (21.2)
- Precision machining 5.5 3.0 1.0 (64.7) (80.8) 11.4 4.0 (64.9)
EBITDA 6.1 3.2 2.4 (23.0) (60.2) 12.6 5.6 (55.7)
Dep. & amortisation (1.3) (2.3) (2.0) (11.0) 50.9 (2.3) (4.3) 84.6
EBIT 4.8 0.9 0.4 (53.2) (91.2) 10.3 1.3 (87.2)
Net finance cost (0.1) (0.1) (0.1) 6.8 49.1 (0.2) (0.2) (6.7)
EI 0.8 1.5 0.7 (55.7) (20.5) (1.1) 2.2 (304.2)
PBT 5.6 2.3 1.0 (56.7) (81.7) 9.1 3.4 (62.9)
Core PBT 5.6 2.3 1.0 (56.7) (81.7) 10.8 3.4 (68.9)
Tax (1.4) (0.6) (0.0) (92.2) (96.4) (2.7) (0.7) (74.9)
PAT 4.2 1.7 1.0 (43.8) (76.9) 6.4 2.7 (57.9)
Core PAT 3.5 0.6 0.5 (19.4) (87.2) 7.2 1.0 (85.9)
Core EPS (sen) 0.8 0.1 0.1 (19.4) (87.2) 1.7 0.2 (85.9)
DPS (sen) 0.0 0.0 0.0 nm nm 0.0 0.0 nm

Profitability ratio p.p. p.p. p.p.

EBITDA margin (%) 13.8 3.2 2.0 (1.2) (11.8) 18.3 11.3 (7.0)
Core PBT margin (%) 16.1 8.3 4.9 (3.4) (11.2) 15.7 6.8 (8.9)
Tax rate (%) 24.8 26.7 4.8 (21.8) (20.0) 24.8 20.1 (4.8)
Core PAT margin (%) 10.2 2.0 2.2 0.2 (8.1) 10.4 2.1 (8.4)

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T HI S P A GE I S IN T E N T I O N AL L Y L E F T B L AN K )

Stock Recommendation Guideline

BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL : Total return is lower than the required rate of return.
Not Rated: The company is not under coverage. The report is for information only.
Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return
if dividend discount model valuation is used to avoid double counting.
Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

ESG Scoring & Guideline

Environmental Social Governance Average
Scoring   
 
 

Coraza seeks to minimise
environmental pollution via
Coraza has reasonable oversight in
compliance with the Environment
Coraza emphasises on employee place, supported by established Code
Quality (Scheduled Wastes
Remark safety and health. It is also committed of Conduct and Ethics Policy, Anti-
Regulations 2005) for waste disposal
through various CSR initiatives. Bribery and Anti-Corruption Policy,
and employing additional measures
and Whistleblower Policy.
via monthly tests on wastewater
effluents.
★★★★★ (≥80%) : Displayed market leading capabilities in integrating ESG factors in all aspects of operations, management and future directions.
★★★★ (60-79%) : Above adequate integration of ESG factors into most aspects of operations, management and future directions.
★★★ (40-59%) : Adequate integration of ESG factors into operations, management and future directions.
★★ (20-39%) : Have some integration of ESG factors in operations and management but are insufficient.
★ (<20%) : Minimal or no integration of ESG factors in operations and management.
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without
notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this
document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

As of Friday, August 25, 2023, the analyst, Wilson Loo, who prepared this report, has interest in the following securities covered in this report:
(a) nil
“This report has been prepared by TA SECURITIES HOLDINGS BERHAD pursuant to the Research Incentive Program under Bursa Research Incentive Scheme (“Bursa RISE”) administered by Bursa Malaysia
Berhad. This report has been produced independent of any influence from Bursa Malaysia Berhad or the subject company. Bursa Malaysia Berhad and its group of companies disclaims any and all
liability, howsoever arising, out of or in relation to the administration of Bursa Research Incentive Program and/or this report.”

Kaladher Govindan – Head of Research

TA SECURITIES HOLDINGS BERHAD (14948-M)

A Participating Organisation of Bursa Malaysia Securities Berhad

Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048

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