[Technology Stocks] Wentel Engineering Holdings | 12Inves

The moderator heard about the 2024 Olympics. Will this company benefit?

Speaking of which, the recent stock price trend of Wentel Engineering Holdings Berhad (WENTEL, 0298) was very good, and the stock price reached a record high of RM0.390; so, what is the Wentel company worth paying attention to, why is it called a “technology stock”, and what are the company's future prospects?

Let me give you a brief introduction; WENTEL was listed on February 6, 2024, and the company's main business is sheet metal processing (“Sheet Metal Fabrication”), manufacturing precision parts (“Precision Engineering”), and equipment assembly (“Assembly”).

The entire production process of WENTEL products is to first purchase raw materials (mainly sheet metal), then go through a series of processes such as punching (“punching”, which I personally understand as “drilling”), laser cutting (“laser cutting”), CNC milling (“CNC milling”, which may be understood as “engraving” with equipment), surface treatment (“Surface Treatment”), and then final assembly.

So why do we say WENTEL is a technology stock?

Readers familiar with technology stocks, when they see the above production process, should think of UWC Berhad (UWC, 5292) and SFP Tech Holdings Berhad (SFPTECH, 0251), which were very strong before the stock price; however, I personally think that WENTEL will actually be relatively close to UWC's business..

However, WENTEL will be more special than sheet metal processing and precision parts processing on the market. In the case of FY2022, about 63.34% of WENTEL's revenue is contributed by security inspection equipment (“Security Screening Equipment”).

So-called security equipment includes security equipment for our people and luggage passing through airports. For example, Rapiscan Group, the world's largest manufacturer of security equipment, is also a customer of the company (according to a friend, it seems like the second-largest manufacturer of security screening equipment is also their customer).

As you can imagine, when there is political turmoil or large-scale events, such as the 2024 Olympics, or any political turmoil, such as the Red Sea incident, etc., the demand for security checks will increase, and it will also indirectly bring new orders to WENTEL.

As a reference, usually these large companies only have 2 to 3 suppliers (commonly known as “AVL”), and they rarely change, so the probability that the order will be delivered to the company is quite high.

Furthermore, WENTEL generally participates in customers' new product development (“NPI”) before entering the mass production stage, maintaining their position in AVL to a certain extent.

In addition to the security inspection equipment accident, WENTEL's turnover in FY2022 is about 19.62% of semiconductor equipment, including front-end and back-stage semiconductor devices (what kind of equipment is described in the prospectus), but according to recent statements from other semiconductor companies, orders from this industry should have returned.

Finally, WENTEL also contributed 14.19% of its revenue from CNC equipment, which is also an important machine for producing precision parts. In addition, 2.72% is contributed by medical testing equipment (“Medical Diagnostic Equipment”), and the remaining 0.13% comes from other businesses.

Before visiting the WENTEL factory, the moderator also had the pleasure of visiting the factories of several sheet metal and precision parts manufacturers; the difference of WENTEL was that they would leave many production processes in-house, such as some complicated cutting and welding, and these companies would invest their own money (“CAPEX”) to buy equipment, which greatly reduced the time cost of production.

In addition, another competitive advantage of WENTEL is their surface treatment business; in Malaysia, the surface treatment business is a very high threshold business, and is by no means as simple as painting. For example, to successfully electroplate a sheet metal (“electroplating”), which means that the product is not susceptible to corrosion, it needs to go through 30 treatment tanks (“Tanks”), and it is also approved by the Malaysian Environment Authority (“DOE”), which is quite difficult..

By the way, WENTEL's products are High Mix Low Volume, which means that many products are customer-specific. This is a bit different from mass production in the EMS industry (although we just mentioned WENTEL's mass production, it's only a few hundred pieces a month, and EMS can reach tens of thousands), so having more equipment with different processes is tantamount to having better time and cost control, which is also the company's competitive advantage.

Of course, different companies have different strategies for different customers, and it doesn't say whose operating model is the most perfect.

After the 2024 Olympics, we also have FIFA in 2026, which will also bring a large number of new orders for security equipment. Plus, the semiconductor industry is about to recover (hopefully). It's no wonder that in the company's FY2023 annual report, the top 30 shareholders are either the majority shareholders themselves, or the funds are being deployed.

As mentioned at the beginning of our article, WENTEL's stock price has risen quite a bit, which also reflects future valuations, but more importantly, if the company's performance breaks through the previous high within FY2024, I personally think Forward PE is reasonable, but this depends on the company's next quarterly report.

Anyway, the moderator will continue to keep a close eye on WENTEL in the future. I don't know what people think of WENTEL?

Photo source: taken from the company's official website

Disclaimers:

The moderator is not a licensed stock analyst, so we don't provide any trading advice. If necessary, you can ask a licensed stock analyst or licensed stock broker.

The current status of the moderator is iFAST Capital Sdn. Bhd. He is also the marketing representative of TA Securities Holdings Berhad, and is an independent financial content writer, and does not provide financial consulting services.

At the time of writing this article, or in the short term (within 3 months), the moderator itself had no interest in investing in or owning the company mentioned above, unless new information comes out, so readers must check the independence of this content.

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