Wentel is involved in the (i) fabrication of semifinished metal products, (ii) fabrication of metal parts and (iii) assembly of finished products, mainly serving security screening equipment, semiconductor manufacturing equipment and CNC machines manufacturers.
We project FY25/26/27F core net profit to grow by 19.7%/18.3%/18.5% - representing a 3-year CAGR of 19%, driven by (i) a stellar 36% revenue CAGR from the E&E segment supported by successful qualification of an extensive NPI pipeline, (ii) steady 3-year CAGR of 13% in the security screening segment and (iii) additional capacity from Lot 815.
We initiate coverage on Wentel with a BUY call and a target price of RM0.50, based on a 20x PE multiple on FY26F EPS of 2.5 sen. We like Wentel for its (i) favourable earnings growth trajectory, (ii) deepening exposure to the higher-margin E&E segment and (iii) undemanding valuation of 13x FY26F PE.
Key Investment Highlights
Structural demand growth for security screening systems. The global security screening market is set for steady growth, fuelled by rising air passenger volumes, expanding global trade as well as intensifying trade tensions and national security concerns, which have driven stricter inspection protocols globally. Additionally, consistent technology upgrades and replacement cycles aimed at improving detection precision serve as another key tailwind for Wentel. We project the Group’s security screening segment to grow by 18%/12%/10% for FY25/26/27F, supported by improving order visibility from its two major customers. We view the segment’s non-cyclical nature as a positive, offering earnings stability amid broader market volatility.
E&E segment emerging as a key growth engine. Wentel’s E&E segment serves as a key growth driver for the Group. The E&E division currently contributes c.20% of total revenue, of which c.12% is derived from the fabrication of precision parts for front-end WFE OEMs and contract manufacturers. We expect the E&E contribution to record solid double-digit growth over the coming years, mainly driven by materialisation of ongoing NPI qualifications. Wentel currently has >1000 NPIs under assessment by its key customers. We forecast its E&E revenue contribution at RM27.9m/RM37.6m/RM50.3m for FY25/26/27F, representing 21%/24%/28% of the group’s revenue over our forecast horizon.
New production facility to unlock next phase of growth. Wentel is constructing a new plant (Lot 815), featuring a total built-up area of c.300k sqft. Post-completion of Lot 815 by end-2025, Wentel will relocate its operations from Lot 58 to Lot 815, resulting in net addition of 170k sqft operational floor space from 164k sqft to 334k sqft, effectively doubling the Group’s total production floor space. Wentel will commence operations of Lot 815 in 1H26. In our view, the additional capacity offers ample runway for revenue growth, supported by Wentel’s enhanced capacity to meet increasing orders from security screening system customers as well as broaden its exposure and customer base in the E&E segment.
Attractive risk and reward profile. The Group is trading at an undemanding valuation of 13x our forecasted FY26F earnings, a discount to its precision engineering peers valued at an average of c.23x. We believe this discount reflects its relatively lower current revenue exposure to high-growth sectors such as semiconductors against its peers, as well as their established track records and deeper value-added engagements with front-end WFE OEMs. Nonetheless, we view its risk-reward profile as skewed favourably to the upside, with ample rerating potential as the Group delivers on earnings and proves successful in scaling its E&E segment.
Valuation. We initiate coverage on Wentel with a BUY call and a target price of RM0.50, based on a 20x PE multiple applied to FY26F EPS of 2.5 sen. We like Wentel for its (i) favourable earnings growth trajectory (3-year CAGR of 19% over FY25-27F), (ii) deepening exposure to the higher-margin E&E segment and (iii) undemanding valuation of c.13x FY26F PE.
Disclaimer
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.166777 | 4.199913 |
| EUR | 4.811011 | 4.820428 |
| CNY | 0.586842 | 0.587429 |
| HKD | 0.535790 | 0.540066 |
| SGD | 3.190939 | 3.216443 |