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1. A Laggard ?

Many semiconductor stocks had been re-rated recently. In my opinion, Sam Engineering is one laggard that has been overlooked.




2. Historical Profitability

The following is Sam Engineering's recent few quarters' result :


Key observations :-

(a) Sam Engineering derived a significant amount of profit from semiconductor equipment manufacturing. In FY2019, out of segmental profit of RM97 mil, RM41 mil was attributable to semiconductor equipment manufacturing (42% of total profit). Aerospace division accounted for 58%.

(b) Same as many other companies, Sam's semiconductor equipment division did not perform well in March 2019 quarter. If not because of the gain on disposal of properties amounted to RM9.1 mil, segmental profit would be RM6 mil only, almost half of its normal profit of RM12 mil per quarter (please refer to thick line boxes). 

(c) However, the worst should be over. In the June 2019 quarter, Sam reported strong core EPS of 14.9 sen. Its semiconductor equipment division's earning normalised to the usual RM10 mil range.


3. Strong Capex 

The group has been spending heavily on capex in recent few years. This augurs well for future growth.




4. Concluding Remarks

Over the next few years, the aerospace division will be busy executing its massive RM3 bil contracts.

The semiconductor equipment division will benefit from the coming 5G super boom cycle. 

At current price of RM8.00, the stock is trading at 13 times PER (based on 15 sen EPS annualised = 60 sen). Based on my exprience, as its EPS grows in the coming years, PE multiple will also expand as market gets excited about its prospects. I think Target Price of RM12.00 within two years is not impossible.

Buy at own risk.  

https://www.sam-malaysia.com/wp-content/uploads/2019/09/SAMEE-25th-AGM-Presentation-Post-Discussion-As-at-21-August-2019-R.._.pdf

https://klse.i3investor.com/blogs/icon8888/231104.jsp
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