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The company is MTAG. It is the most undervalued Dyson-linked company on Bursa Malaysia.

Over the last 5 months, the three Dyson contract manufacturers VS Industry, ATA IMS and SKP Resources have more than doubled in share price. All of them also reported strong revenue and earnings as demand for Dyson products rose significantly due to the work-from-home phenomenon.

MTAG supplies various parts (stickers, adhesives and steel parts) for all of Dyson's products. MTAG's products are not only used for Dyson's vacuum cleaners but also the air purifier, hair products and fans. 2 days ago, MTAG reported its quarterly results and it was the strongest ever profit posted in their history. It is not a surprise because whenever VS, ATA and SKP do well, MTAG will automatically do well because their products are needed by those 3 contract manufacturers.

Below is the summary of MTAG's financial results for the past few quarters:

Based on the revenue guidance and outlook of ATA and SKP (not VS since those 2 are almost pure Dyson contract manufacturers whereas VS is not), MTAG should not have a problem achieving a 20% growth in revenue and profits for FY21. 4Q20 revenue and profit cannot be used since business was disrupted by the MCO. But it was actually surprising that they managed to report a profit in 4Q20 of RM5 million even with the MCO while the other contract manufacturers were not profitable. Based on the first 4 quarters since listing, MTAG reported a profit of RM34 million. With a 20% growth, MTAG should easily achieve RM41 million in net profit in 2021.

How are the Dyson contract manufacturers valued? Based on their earnings projections, they are being valued at around 18x 2021 forecasted earnings. How much is MTAG valued now? It is only 12x 2021 forecasted earnings. There is totally no reason why MTAG should trade at a discount to any of the Dyson contract manufacturers. In fact, it should trade at a premium since MTAG's net margins are much higher at around 18% versus the 3-5% for the contract manufacturers. MTAG also has more than RM100 million in cash with zero borrowings whereas the other contract manufacturers have high debt levels. Since MTAG is flooded with cash, it pays a very high dividend yield compared to the 3 contract manufacturers. in FY20, MTAG paid 3sen in dividend, translating into a a dividend payout ratio of 68%. At 3 sens, the dividend yield at today's price of RM0.74 is 4.1%. This is significantly higher than the 1-2% that the other 3 contract manufacturers are offering.

It is a matter of time before investors realise this undervaluation and the share price moves higher.
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