This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023

IT has been an eventful year for ACE Market listings with 2022 marking the highest number of initial public offerings (IPOs) over the past five years.

At last count, 35 companies made their debut on Bursa Malaysia this year — five on the Main Market, 25 on the ACE Market and five on the LEAP Market.

SFP Tech Holdings Bhd is the best-performing ACE Market IPO over the December 2021-November 2022 period, given the more than 480% surge in its share price less than six months after its listing, catapulting it into the billion ringgit club.

The Penang-based company involved in the semiconductor sector saw its share price skyrocket 123% to 67 sen on its debut on June 20 from its retail price of 30 sen each.

Investors continued to buy into the stock and by Nov 30, SFP Tech’s share price was trading at RM1.74 per share, which translates into a market capitalisation of RM1.39 billion. Impressively, more than RM1 billion has been added to its market cap from RM240 million upon listing.

Public Investment Bank Bhd was the principal adviser, sponsor, sole underwriter and sole placement agent for the IPO.

Even from the onset, demand for SFP Tech’s shares was robust as its IPO was oversubscribed by 41.61 times.

A semiconductor player in computer numerical control machining and mechanical assembly services, as well as automation equipment solutions, SFP Tech only began operations in 2012 in sheet metal fabrication services, after Keoh Beng Huat — currently the managing director and single largest shareholder with a 68.85% stake — incorporated Stampford Technology Sdn Bhd. Its operations at the time included metal cutting, bending, welding as well as minor assembly of fabricated parts for machinery and equipment.

In 2013, SFP Tech expanded its service offerings by providing sub-modular mechanical assembly services for frames and enclosures such as machine structures, machine frames and metal enclosures, to support the assembly requirements of its customers. It also ventured into the provision of computer numerical control machining services to fabricate precision-machined components.

Two years later, it was granted pioneer status by the Malaysian Investment Development Authority (Mida) under “design, development and manufacture of semiconductor test head manipulator” and now boasts customers in Malaysia, the US, Singapore, Vietnam, Thailand and Europe.

SFP Tech raised RM62.23 million from its IPO, the bulk earmarked for capital expenditure including the construction of Manufacturing Plant 3 in Penang Science Park, as well as for the purchase of machinery, and to set up a design and development centre.

Three months prior to the IPO, the company made two acquisitions in the form of SFP Technology Sdn Bhd (STSB) and EST Exhibit Automation Sdn Bhd (EEASB) for a total of RM59.36 million, paid through the issuance of 550.77 million shares at 10 sen apiece.

EEASB is involved in automated equipment solutions, and STSB in sheet metal fabrication, computer numerical control machining and mechanical assembly services.

SFP Tech’s IPO entailed a public issue of 207.44 million new ordinary shares with an enlarged issued share capital of 800 million shares. At 30 sen per share, SFP Tech was valued at a price-earnings ratio (PER) of 12.36 times based on 2.43 sen earnings per share for the financial year ended December 2021 (FY2021). According to Bloomberg, at RM1.74 per share, SFP Tech is now valued at a PER of 44.60 times FY2022 estimated earnings.

For the first nine months of FY2022, it posted a net profit of RM24.40 million on the back of RM60.80 million in revenue. Back-of-the-envelope calculations indicate it enjoyed a net profit margin of about 40%.

Hong Leong Investment Bank Research (HLIB) had projected record profits from FY2022 to FY2024 driven by EEASB, the completion of Manufacturing Plant 3 comprising a three-storey factory and warehouse with a three-storey office building with a built-up area of approximately 319,200 sq ft (triple the group’s total current built-up area of 152,500 sq ft), and 41 new computer numerical control milling machines.

“We raise our FY2022-FY2024 estimates by 2%, 29% and 17%, respectively, after increasing our blended utilisation rate assumptions for its computer numerical control machining segment,” HLIB said in a recent report. The research house has a “hold” call on SFP Tech with a target price of RM1.53 a share, as all the positives have already been priced in at current levels.

“Our target price is pegged to a forward multiple of 27 times on revised FY2023 forecast earnings — which is somewhat at parity to its peers’ weighted average forward PE multiple of 28 times,” HLIB added.

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