Affin Hwang initiates coverage on MTAG, sets target price at 75 sen

PETALING JAYA: Affin Hwang Capital Research has initiated coverage on MTAG Group Bhd with a “buy” call and a target price of 75 sen, based on a price-to-earnings ratio (PER) of 13 times against the group’s FY21 forward estimated earnings.

In a note, Affin Research said MTAG’s valuation was at a 20% discount to the target PER it applies to electronics manufacturing services (EMS) players under its coverage universe.

“Currently trading at only 10x FY21E PER, we believe valuation looks appealing given its solid fundamentals, relatively high margin vs. its peers, low labour intensity requirements and high stock liquidity.

“We like MTAG for its position as a key label & sticker printing supplier and mesh material converter for a global renowned household appliances brand, strong barriers to entry via its technical expertise in the niche printing and converting industry for the E&E sector over the past 23 years, solid earnings growth, its less labour-intensive nature of its business, and attractive valuation and aboveaverage ROE (return on equity) of 22%,” it said.

MTAG is a key supplier of labels & stickers and converter of mesh materials for its indirect key customer, fulfilling an estimated 60-70% share of the latter’s requirements globally.

The company was established in 1995 and was listed on the ACE Market on Sept 25, 2019 at an IPO price of 53 sen.

Approximately 80% of MTAG’s revenue is contributed by EMS companies, namely ATA IMS Bhd, VS Industry Bhd and SKP Resources Bhd, which serve this indirect key customer.

According to the note, MTAG plans to construct a new integrated manufacturing plant and purchase new machineries to double its capacity gradually over the next three years.

“This will enable the group to cater to the growing demand of its existing customers, capture a larger share of the industry and improve efficiencies.

“We expect MTAG’s growth to be supported by its indirect key customer’s new product introductions and application of higher-end materials, riding on the latter’s ambitious plans, aggressive R&D roadmap, innovation and growth prospects,” it said.

MTAG recorded a three-year revenue and core net profit compounded annual growth rate (CAGR) of 14% and 25% respectively, mirroring its indirect key customer’s threeyear revenue and net profit CAGRs of 36% and 33% respectively.