Overview

Supercomnet Technologies Berhad (Scomnet) is a leading and fast-growing manufacturer of cables and devices with strong expertise in medical as well as automotive fields. The group has strong global exposure given its expanding customer base of multinational corporations. As at 1Q24, the medical segment remained the key earnings contributor to the group, accounting for 76% of sales while automotive and industrial segment accounted for 5% and 19% of revenue respectively.

Investment Themes

• Reputable clients. Proven track record premised on long-term strategic partnership (15-20 years) with tier-1 healthcare partners such as Edwards Lifesciences and Ambu, giving the group orderbook visibility for the next 1-2 years. More importantly, all the R&D and automation machines to develop the products are borne by customers.

• To accelerate growth with new products. Innovative Health Sciences (IHS), specialising in infusion healthcare would become the third largest customer to Scomnet’s over the medium term. The group will undergo performance qualification (PQ) in July, prior to the expected mass production in 4Q24. Meanwhile, Scomnet continues shift to whole device products such as Vascular Dialysis Catheters to target higher margins.

• Exciting cancer play in the making. US based customer N (patented holder using nanoshells – that convert light into heat, thermally destroying solid tumors) has been working with Scomnet’s team to combine nanoshells and laser to minimize side effects linked to radiation. Note that FDA doctors have already verified all final 60 clinical trials (100% success rate) in 1Q24.

Risk

• Production delays. The group’s medical products/suppliers are subject to FDA approval and availability of raw materials.

Recommendation

• We value Scomnet at RM1.73/share based on 30.0x CY25 EPS. We like the group due to its strong earnings growth of 31.9% in FY24F and growing pipeline of new products. Maintain BUY.

Source: TA Research - 2 Jul 2024