Date: September 18, 2024
Broker: UOB Kay Hian
Company Overview
Supercomnet Technologies (SCT MK) is principally involved in the manufacturing of advanced high-technology cables for the IT and automobile sectors. It specializes in the conception and manufacturing of OEM medical cable assemblies, which has become its primary growth driver in recent years. SCT operates in various sectors, with a significant portion of its business focusing on the medical segment.
Stock Information
- Share Price: RM1.34
- Target Price: RM2.40
- Upside Potential: 80.5%
- Market Cap: RM1.15 billion (US$269.7 million)
- Bloomberg Ticker: SCT MK
Medical Segment Driving Future Growth
Scomnet’s medical segment is poised for rapid growth, underpinned by a strong pipeline of upcoming new product launches and organic expansion within its existing customers’ product offerings. This segment is projected to be the primary driver of earnings growth in 2025, with an anticipated three-year net profit CAGR of 33-35%. Major customers include Edwards Lifesciences and Ambu Medical, both renowned players in the medical technology industry.
Key Medical Products and Launches
- AI Smart Cables: Soft-launch in 3Q24 for existing and new customers, with a full launch in 2025.
- EEG Cables: Set for launch in 2H25.
- Syringe Infusion System: Soft-launch in 3Q24 and full launch in 2025.
- Nanomedicine Cancer Therapy Device: Awaiting FDA approval, with clinical trials showing a 100% success rate.
- D-Clot Catheter: This product is involved in litigation but has already received FDA approval.
Expansion and Diversification Plans
Scomnet is actively looking to expand its presence beyond its existing borders:
- Expansion in Key Customers: Scomnet is targeting the expansion of its product portfolio for its key clients. Customer E, which is involved in the critical care division, has sold the division to Customer B, and Scomnet expects to continue supplying products to the new owner.
- Automobile Wire Harnesses: Scomnet is in talks with a new US customer to supply automobile wire harnesses as part of a shift from China due to US tariffs. This project could contribute up to RM100 million in revenue annually.
Financial Performance
Scomnet’s medical segment is expected to lead the company to strong financial performance, with net profit projected to grow by over 108% from 2024 to 2025. The revenue for 2025 is forecasted to reach RM332 million, more than double that of 2024.
Key Financials (Forecasts for FY25):
- Revenue: RM332 million
- EBITDA: RM95 million
- Net Profit: RM69 million
- EPS: 8.0 sen
- Net Profit Margin: 20.7%
- ROE: 18.0%
Risks and Considerations
Key risks for Supercomnet Technologies include:
- Single Customer Concentration: Its largest customer is expected to account for 75-80% of total sales in FY24-25.
- Automobile Segment: Contributions from its automobile arm are expected to remain flat due to delays in new Proton model launches and underperformance from its previous partnership with Peugeot.
- New Production Lines: There is a risk of new production lines not coming online as scheduled, which could affect growth prospects.
Valuation and Recommendations
UOB Kay Hian maintains a BUY recommendation on Supercomnet Technologies with a target price of RM2.40, based on 30x 2025F PE, in line with the company’s five-year average PE ratio. The valuation reflects strong growth prospects, driven by the expanding medical segment and healthy financials, including a robust balance sheet.
Environmental, Social, Governance (ESG) Initiatives
- Environmental: SCT has reduced group-wide Scope 2 carbon emissions by 25% in 2023 compared to 2022.
- Social: 43% of the company’s procurement expenditures are committed to local suppliers.
- Governance: The company has achieved 30% female representation on its Board of Directors.
