PETALING JAYA: Phillip Capital has initiated coverage on Cape EMS Bhd
with a bullish outlook, suggesting that it likes the electronic manufacturing services (EMS) company for its strong earnings growth profile, entrepreneurial management team and diversified portfolio mix.
Notably, the research house said the group has managed to expand its net profit at a three-year compounded annual growth rate of 106% from 2019 since chief executive Christina Tee and her partners took over and restructured the firm back in 2013.
In an initiation note published yesterday, Phillip Capital said the success of the Johor-based group can be attributed to the escalating US-China trade tension which began in 2019, leading many multinational companies to diversify their manufacturing operations to Malaysia.
“Malaysia has surfaced as a US-China trade war beneficiary, capitalising on the reconfiguration of global supply chains and manufacturing operations shifting out from China,” the research unit highlighted.
As such, the “+1 strategy” has presented local EMS contract manufacturers like Cape EMS ample opportunities to attract new potential customers, benefiting from the US-China trade war, which resulted in its mercurial net profit rise from 2019 to 2022.
Moreover, it pointed out that the group also has a well diversified portfolio, as it is the most well-balanced contract manufacturer in terms of segment exposure as compared to its peers.
Philip Capital reported that Cape EMS’ portfolio is skewed towards industrial electronics through the consumer electronics segment, standing at a roughly 80:20 mix, before adding that the group’s exposure in the industrial segment is poised to benefit from the strong secular growth theme in the years ahead. It began its coverage on Cape EMS with a “buy” call, setting a 12-month target price of RM1.90.
