SAM Engineering & Equipment: A Comprehensive Analysis

Broker: Maybank Investment Bank Berhad
Date: November 20, 2024

Introduction

SAM Engineering & Equipment (SAM E&E), a prominent player in the aerospace and equipment manufacturing sectors, has been the focus of a detailed financial analysis by Maybank Investment Bank Berhad. This report delves into the company’s recent performance, future projections, and the investment recommendations for interested stakeholders.

Financial Performance and Projections

The report highlights SAM E&E’s financial performance for the second quarter of FY25, showcasing a positive recovery in its aerospace segment. The company’s core net profit for 2QFY25 stood at MYR20.3 million, reflecting a significant 106% increase quarter-on-quarter, although it was down by 39% year-on-year. The cumulative earnings for the first half of FY25 reached MYR30.2 million, a decline of 40% year-on-year, aligning with 37% of their full-year estimates. This downturn is attributed to challenges in the aerospace segment, including temporary halts in product deliveries due to design changes and material shortages.

Growth Outlook

The global aerospace market remains robust, with giants like Airbus and Boeing planning production increases by 2026-2027. Airbus aims to boost its A320neo production to 75 units per month by 2027, while Boeing plans to enhance the output of its 737Max and 787 models. Despite current supply chain disruptions, these projections provide a positive long-term outlook for suppliers like SAM E&E.

Core Financial Metrics

Maybank’s analysis provides a detailed breakdown of SAM E&E’s financial metrics. The company’s revenue for 1HFY25 was MYR703.6 million, a slight decrease from the previous year. The equipment segment reported a QoQ growth in revenue and core profit before tax, driven by increased customer demand. The projected revenue and core net profit for FY27 are MYR2,150.1 million and MYR151.1 million, respectively, indicating a strong upward trajectory.

Valuation and Recommendations

Maybank has revised its price target for SAM E&E to MYR5.50, down from MYR5.71, maintaining a “Buy” recommendation. The valuation is based on a 32.7x PER of the FY26E EPS. The report emphasizes SAM E&E’s position as a secular growth company with promising customer relationships, projecting a 13% CAGR in core net profit over FY24-27.

Risk Factors

The report acknowledges several risk factors that could impact SAM E&E’s performance, including potential delays in the recovery of the semiconductor and aviation industries, loss of market share, and production issues in both its aerospace and equipment segments.

Conclusion

SAM Engineering & Equipment is poised for growth, with a strong recovery in its aerospace segment and strategic positioning in the global market. Despite current challenges, the company’s financial outlook remains positive, supported by robust industry demand and strategic partnerships. Investors are encouraged to consider SAM E&E as a viable long-term investment opportunity.