The broking house rated the technology company as overweight, which means the capital appreciation and dividends of the stock is expected to exceed 15% over 12 months.
In the research report, SJ Securities said:“We have an overweight rating on Sanichi with a target price of RM0.140 with an estimated FY17 EPS of 1.74sen and forward PER of 8x, with a potential upside of 75.0% against market price of RM0.080 at the time writing. We anticipate impressive growth for Sanichi over the next couple of years weighing on sustainable demand for plastic injection mould and additional contribution from the property segment.”
The report also pointed out that at RM0.08 a piece, Sanichi is trading at 187.5% below its NTA value per share of RM0.23.
In the Financial Overview, the research found that Sanichi’s top line (or revenue) soared 91.1% in FY15, from RM22.41 million in FY14 to RM42.84 million. Sanichi’s revenue escalated at 114.6% 3-year CAGR from year 2013, when the Group returned to the black.
The Group’s profit after tax (PAT) excluding extraordinary items increased more than two-folds from RM2.28 million to RM9.23 million.
Core EPS also recorded an impressive 51.2% 3-year CAGR. (note: The above Financial Overview has omits the one-time expenditure on Employee Share Option Scheme (ESOS) of RM6.24 million recognised in FY2015 for better comparability.)
The report predicts a moderate 17.52% increase in revenue for FY16, amounting to RM50.3 million.
However, the revenue is expected to jump by a staggering 171.26% to RM116.1 million in 2018.
Sanichi is a public-listed company in Malaysia which has two segments. The first segment manufactures precision plastic injection mould and also design and fabricate precision moulds and tooling.
Their products ranged from cosmetic parts for vacuum cleaner, washing machines, refrigerators, printers, air-conditioners, medical equipment and others) to mechanical parts (pulley motors, gears, bearings, feed rollers and clampers among others.
Sanichi has a portfolio of 110 customers, comprised of both local & foreign corporations spanning across various industries.
Some of their big clients include BMW, Audi, Mercedes, Toshiba, Panasonic and Hitachi among others. However, the automotive sub-segment is currently the largest revenue contributor. Sanichi is also multi-national company which has presence in China, Germany, France, Indonesia, Japan, Mexico, Singapore, Spain, Thailand and Vietnam.
Sanichi ventured into the second segment in 2014, namely property investment and development.
More revenue after doubling of manufacturing capacity
The research reported that Sanichi’s manufacturing segment has 130,000 sqft manufacturing facilities with 40,000 sqft built-up area. It has an annual capacity of 240 moulds at a value of RM21.6 million. The maximum plastic injection mould size is able to cater up to 1,600 tonne injection (20 tonne for mould weight).
Currently, STB manufacturing arm is running at 100% capacity, therefore STB has been relying on sub-contractor to help fulfil the Group’s excess orders. To cater to the excess demand, Sanichi is building a new factory which aims to double its operation capability by end of this year.
New constribution from Property Development
The report also highlighted that Sanichi is planning to officially launch its maiden project, Marina Point in 2H2016. This RM197 million GDV project is a freehold mixed development located in Klebang, Malacca, occupying 93,345 sqft, comprises of 352 residential units and 120 commercial units, strategically located near the Malacca Gold Coast. The property is provided with swimming pools, gymnasiums, sky bars, parking podiums, along with 24-hour security and also CCTVs. It is neighbouring upcoming tourist attractions such as the iconic Resort Theme Park, 30 acres of government-led Green Park, and Cheng Ho Free Trade Centre.
Despite the soft property market, the Marina Point project in Malacca is expected to spark the interest of potential buyers after it has delivered about 20% bookings during its soft launch, due to its attractive pricing and lower entry barriers for foreigners to purchase properties in the state.
More development and value ahead
Other than Marina Point, Sanichi also has project worth RM864 million GDV in the pipeline. The S Residences, is a residential and commercial project located on 8.87 acres freehold land at Segambut. It will most likely commence construction in year 2017. The project is expected to contribute positively to Sanichi’s earnings, but currently the project’s contribution hasn’t been included in this research report forecast yet until more details are made available.
Very strong net cash position
Finally, the research house prompted that Sanichi has a net cash position in FY15, mainly attributable to the substantial repayment of its borrowings. As at FY15, STB has only RM2.17 million of unsecured restructured term loans, after settling RM8.70 million restructured term loans. The net cash reserve of Sanichi stood at RM17.3 million as of 3Q FY16, and it is set to increase again after its recent renounceable rights issue which has successfully completed on 29 July 2016 and raised RM62.95 million.