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*SFP (Maintain BUY, TP at RM0.98 based on 35x 2025 PE)*
• *On a record quarter; within expectations.* SFP registered a record core net profit of RM15.0m (+16% qoq, +44% yoy) for 3Q24, bringing 9M24 core net profit to RM36.6m (+23%) which made up 81%/84% of our/consensus full-year expectations.
• *While 9M24 appeared to have exceeded expectations, we deemed results to be in-line* given expectation of a seasonally weaker 4Q24. We expect 2024 to be a record year for the group underpinned by its venture towards high value-add equipment module and complex piece part fabrication.
• Not only is the group involved in undertaking more advanced tasks such as assembly (as opposed to the predominant focus on parts in 1H22), it has also gained much traction with customers in the FEOL semiconductor, medical, renewable energy and EMS segments which offer better profitability.
• *Yoy,* 1H24 revenue improved 16% as a result of a much stronger 3Q24 sales on a qoq and yoy basis which was also a record quarter. While headline EBITDA margin marginally dropped 0.4ppts on higher unrealized forex losses, core net profit improved 1.5ppts resulted from higher engagement in the higher-margin FOEL semiconductor segment.
• *Qoq,* revenue improved 4% driven by stronger sales from China related to the FEOL semiconductor segment. On better operational efficiency, core net profit improved 16%.
• *Realising huge potential via three-pronged strategy.* Despite the industry downcycle in 2023, the group recorded strong revenue growth of 45% yoy for the year on the back of record-high contribution from the mechanical assembly segment.
• While this segment’s margin is relatively lower than that of sheet metal fabrication and CNC machining, the quantum of absolute revenue was much higher. Looking beyond, SFP aims to integrate these services by securing full assembly businesses which require more space and capacity expansion.
• Note that the group is in talks with a handful of new customers which could require new premises to house these services should they materialise.
• SFP has also incorporated a wholly-owned subsidiary named SFP Integration in Singapore, whose principal activities are in design and development of production systems, machinery and equipment, and provision of other engineering services.
• This new subsidiary is expected to spearhead the group’s growth in capturing seas of opportunities in the semiconductor wafer fabrication space, predominantly in semiconductor FEOL strategic business opportunities, which is the group’s current key focus area.
• *As of mid-Aug24, the group’s orderbook stood at RM94m.* Following the brink of the semiconductor upcycle which is spurring the front-end semiconductor demand, we believe there could be more traction in the upcoming orderbook loadings.
• We are forecasting a three-year revenue/core net profit CAGR of 27%/30% (vs 24x 2025F implied PE), on the back of better order loadings from its key customers in tandem with SFP’s capacity expansion.
• Note that the industries where its key customers are operating in are relocating their supply chains to Malaysia, which prompted SFP to expand its capacity and improve its service offerings
• No change to earnings.
• *Maintain BUY with an unchanged target price of RM0.98,* still based on 35.0x 2025F PE. This is based on average five-year forward mean PE of the semiconductor production equipment segment.
