It has a target price of RM1.53 based on FY2024 earnings-per-share (EPS) of 8.5 sen and a price-to-earnings ratio (PER) of 18 times, in line with its peers’ five-year average.
The target price represents a 70% return on Cape EMS’ IPO price of 90 sen.
The company plans to raise RM155.7 million through its listing via the issuance of 173 million new shares. It will have an enlarged issued share capital of 923 million, and a market capitalisation of RM830.7 million upon listing.
The group also announced a dividend policy of up to 30% of profit after tax.
Cape EMS is primarily involved in the electronic manufacturing services (EMS) sector. Through its subsidiaries they are further involved in aluminium die casting and the supply of parts and components.
With the money raised, the company plans to expand its factory floor space to accommodate its growing EMS operations at its new PLO 227 factory. This will increase their total factory floor space from 332,771 sq ft to 463,471 sq ft by the first half of 2024.
The largest share of the IPO proceeds (RM62.8 million) will be spent on the setting-up of a new cleanroom facility and the purchase of new automated production lines. The new production lines are expected to increase production capacity by 133%.
The company also plans to further expand its EMS business by investing in four new automated production lines for refill pods at its Senai 227 factory to cater for the expected expansion of EMS for electronic cigarettes.
The new production lines are expected to increase capacity by approximately 133% from 3.3 million pieces per month to 7.7 million pieces per month by end 2024, allowing more room for revenue and profitability growth going forward.
In February 2022, Cape EMS acquired a new production facility in Tebrau, Johor, to scale up their aluminium die cast business. They intend to use RM4.6 million of the money raised to purchase the new machinery required.
The company’s major shareholders are listed as Tee Kim Chin (40.6%) and Tee Kim Yok (13.8%). Kim Chin serves as both group managing director and CEO.
Cape EMS has seen profit after tax (PAT) steadily climb from RM20.2 million for FY2020 to RM31.9 million for FY2022. The company projects a 46% rise in PAT to RM59 million for FY2023.
Mercury Securities cautioned that risk factors post-listing for Cape EMS include the failure to secure new customers and shortages arising from protracted supply chain disruptions.