InvestIdeas

Group's earnings of RM16.61 million or 2.61 sen per share for the financial year ended March 31, 2022, and a share base of 636.2 million.

Oppstar is principally engaged in the provision of IC design services covering front-end design, back-end design and complete turnkey solutions.

Its customers include integrated device manufacturers, fabless companies, fab-lite companies, electronics system providers and other IC design houses.

Oppstar’s IC designs can be used for end products in industries such as telecommunications, industrial electronics, automotive and consumer electronics.

Expects to be listed on Bursa Malaysia on March 15, with the closing of retail offerings on March 3.

PublicInvest Research has derived a fair value of 92 sen based on a 23x PE multiple to its FY24F EPS.

Secured recurring orders/contracts from customers, some of whom are multinational corporations (MNCs) that are headquartered in the United States and Japan.

Oppstar’s growth will be driven by:
i) expansion of its workforce,
ii) expansion of its geographical footprint,
iii) business expansion through investments and acquisitions,
iv) expansion of its post-silicon validation services,
v) intellectual properties (IPs) development, and
vi) expansion of its collaborations with tertiary institutions.

“Key drivers may include:
i) growth in semiconductor industry, and
ii) continuous technological advancements in end-user products.

“Key downside risks, among others, include:
i) competition from industry players,
ii) dependency on certain major customers,
iii) dependency on its ability to retain and attract skilled engineers,
iv) foreign exchange rate fluctuation, and
v) potential infringement of IP rights” .

Net profit of RM4.46 million or earnings per share of 0.7 sen for its third financial quarter ended Dec 31, 2022 (3QFY2023).

Revenue of RM14.61 million during the quarter

78.63% of the group’s total revenue was contributed from turnkey design service, mainly from turnkey design projects secured from the group’s customers based in China and Malaysia.

Oppstar has strong technical capabilities as the group is capable of designing ICs fabricated using advanced process node technology, including the three-nanometer process node.

Target price (TP) of RM2.28 based on 50 times forecasted FY2024 price-to-earnings ratio (PER).

Based on a 10% premium of its global peers’ average two-year forward PER.

Expects a three-year net profit compound annual growth rate (CAGR) of 35% from FY2022, at an undemanding price-to-earnings to growth (PEG) ratio of 0.5 times.

Blue-sky valuation if pricing at two times PEG ratio (average peak PEG valuation of tech names during the tech run in 2021) suggest potentially higher TP of RM3.20 (at 70 times FY2024F PER).