ELSOFT (0090): Brightening Prospects

ELSOFT (0090): Brightening Prospects

Elsoft is principally involved in research, design and development of test and burn-in systems and application specific embedded systems. Elsoft mainly provides cost effective ATE solutions to the semiconductor, optoelectronic and automation industries. The Group’s key product i.e. test and burn-in systems are used by its customers who manufacture optoelectronic devices such as LED, image sensors and automotive lightings to test their products before launching into the market. The name “Elsoft” consists of two elements i.e. Electronics and Software, symbolising the Group’s core competency in advanced electronics design and software technology innovation.

Tan Cheik Eaik

Koay Kim Chiew

The company was founded by Mr. Tan Cheik Eaik, Mr. Koay Kim Chiew, Mdm. Tan Ai Jiew and Mr. Tan Ah Lek. With more than ten (10) years of experience in the ATE industry, the co-founders have been instrumental in the growth, success and development of the Elsoft Group. 

As a Chief Executive Officer, Tan Cheik Eaik has played an important role both in the business and product development. He is an engineer with more than 20 yrs of experience. He specialises in the areas of test metrology & embedded application system design that contribute to the fundamentals of Elsoft group.

He is assisted by Mr. Koay Kim Chew, electrical engineer, who manages the company's technological direction as chief technology officer, he plays a role in the company's hardware & software design & development. 

 Elsoft offers investors an exposure to the robust growth in mobile devices and the increasing use of LED (light emitting diode) in consumer products.

Earlier in Jan this year, the company completed its transfer to the main market and successfully renewed its pioneer status — enabling it to enjoy tax exemption for the next 10 years until 2025.

Elsoft’s underlying business has been doing very well. Between 2010 and 2014, revenue grew at a CAGR of 41.4% to RM45.14 million, while net profit expanded 50.5% per year to RM20.13 million. Its ROE stands at an impressive 35.4%. The company runs a lean ship, with just 61 staff, translating into a high productivity of RM740,000 in revenue per employee.

Elsoft has a strong balance sheet with net cash position of RM14 million or 8 sen per share, which is supportive of its minimum 40% dividend payout policy, and decent yields. Its dividend yield for 2014 was 4.02%. Given historical trends, investors should expect 2015’s dividend to be declared in August.

Moving forward, Elsoft plans to expand its customer base and produce LED testing equipment for medical devices, which it expects to boost revenue by 20%. Meanwhile, its associate company, Lesoshoppe is expanding to Thailand, Indonesia and the Philippines.

The stock is trades at a trailing 12-month P/E of 13.6 times, which is attractive relative to its strong double-digit growth.

Target Price given by RHB is 2.34

Mr.Tan Chiek Eaik presented his company during "Busy Weekly Seminar" on 9 Aug,2015 at WOU, Penang.

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