Edelteq offers interesting upside to investors

Edelteq Holdings Bhd, an engineering support provider for integrated circuit assembly and test processes, closed at its 10 month high of 52 sen on June 11.

The counter bulls is likely to continue its leg up from here, with follow-through buying lifting prices towards the historical resistances at 56 sen and 59 sen next.

This is still far below its 52-week high of 76 sen but manifold higher from its low of 24 sen.

Recall that this counter made a strong debut on the ACE Market of Bursa Malaysia on June 7 last year.

It opened at 75 sen, a 51 sen or 212.5% premium from its initial public offering (IPO) price of 24 sen.

Edelteq is in a sweet spot, riding on the bullish sentiments of the semiconductor industry as the government aims to provide a Rm25 billion boost via incentives under the new National Semiconductor.

The Company, through its subsidiaries, offers products and services for semiconductor packaging, inspection, monitoring, automation, and testing processes.

In January, Edelteq signed a Memoranda of Understanding (MOU) with a Chinese company and a Malaysian outfit to start semiconductor-related businesses locally and abroad.

It had inked one MOU with China-based CYG Semiconductor Equipment (Zhuhai) Co Ltd to set up two companies — one in China and another in Malaysia — that will be involved in semiconductor-related businesses.

Under the MOU with CYG, Edelteq said the entity in China will be involved in semiconductor equipment design, manufacturing and the sale of substrate wafer automatic optical inspection.

Meanwhile, the Malaysian entity will deal with semiconductor equipment design, manufacturing and sale of IGBT module packaging machines.

Under the agreement, both parties agree that Edelteq would hold a 51% stake in the Malaysian company, while CYG would hold 51% in the entity to be incorporated in China.

CYG — which is involved in the research and development, manufacturing and sale of semiconductor equipment — is an 83.33% indirect subsidiary of Changyuan Technology Group Ltd, a public-listed company in the Shanghai Stock Exchange.

Edelteq also inked an MOU with local optical inspection system firm Halo Technologies Sdn Bhd (HTSB) to set up a business involved in semiconductor design, manufacturing, and sale of substrate automatic optical inspection (AOI) system.

HTSB does research & development work, including designing, development and selling of optical inspection systems using artificial intelligence technology.

However, Edelteq has not fared well.

In its first quarter ended Mar 31, 2024, the company saw a dip in its net profit to RM1.7 million from RM3 million a year ago.

This was on the back of lower revenue of RM7.9 million from RM9.8 million.

Its operational cash flow had also turned negative with a deficit of RM1.1 million as at Mar 31,2024 versus a positive RM2.5 million a year ago.

The automatic test equipment (ATE) segment as well as the B&P segment are the two major revenue contributors to the Group, which contributed 78.62% to its revenue for the current financial quarter under review.

The decline in profit was mainly due to administrative expenses of RM1.44 million.

The administrative expenses mainly comprise of directors' remuneration, staff costs and professional fees amounting to an aggregate of RM1.11 million.

It may be difficult to see how Edelteq can turn its fortunes around given the current state of its financial situation.

But the company is positive on its outlook buoyed by semiconductor industry, which is expected to grow this year, on the back of resilient automotive market and the generative artificial intelligence wave.

Perhaps investors are starting to look at this counter given that it has not seen a bull run compared to its peers.

This counter will offer an opportunity for investors to make some decent returns on its investments.