KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) is positive about the outlook for SAM Engineering & Equipment (M) Bhd, as the company is considered a highly rare secular growth stock.
HLIB likes SAM Engineering given its exposure in both the ultra-fast-growing aerospace and semiconductor industries, which it deems both to be long-term complementary.
"We are positive for the following reasons. The global semiconductor industry is gradually recovering from the inventory correction cycle, and the aerospace sector is turning around strongly as global air passenger travel has recovered to more than 99 per cent of pre-pandemic level.
"While the group's Thailand expansion will take time before breaking-even, we are encouraged by the narrowing losses in each subsequent quarter," it said in a note.
With limited upside, HLIB has downgraded SAM Engineering to "Hold" from "Buy" call with an unchanged target price of RM4.92.
HLIB also said SAM Engineering's financial results were in line.
The company reported core earnings of RM27 million for third quarter ended Dec 31, 2024 (3QFY24), lifting it nine-months period sum to RM74 million.
"Since our upgrade on Jan 5, it has performed remarkably from the low of RM3.40 to the high of RM5.24 as the overhang of the rights issue was completed, yielding a return of 54 per cent," it said.
Furthermore, SAM Engineering's aerospace business turned the corner in 3QFY24 as aircraft manufacturers had announced plans to increase production rates to clear huge backlogs.
HLIB noted that in order to mitigate the supply chain pressure, the company's strategic plan to set up aerospace manufacturing in Thailand is underway.
Its Ban Bueng (BB1) site has obtained AS9100 certification.
Meanwhile, HLIB said SAM Engineering's acquisition of Aviatron was completed on Feb 26 and this will complement the company with new capabilities in new aircraft platforms, new engineering know-how, and new competencies in non-destructive testing (NDT) and specially processes and assembly.
It added that the consolidation of Aviatron is projected to elevate aerospace contribution from 23 to 35 per cent.
"With Aviatron, SAM Engineering is positioned to venture in aircraft structure business," it said.