Frankly Speaking: Genetec euphoria overdone?

This article first appeared in The Edge Malaysia Weekly, on July 12, 2021 - July 18, 2021.
Frankly Speaking: Genetec euphoria overdone?
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Genetec Technology Bhd more than doubled its market capitalisation in the last three weeks amid news that China’s Zeng Yuqun has overtaken Jack Ma as the richest man in that country. Zeng is the largest shareholder of Contemporary Amperex Technology Co Ltd (CATL), which supplies batteries to Tesla.

As demand for electric cars (EV) increases, those manufacturing components for

the sector, especially the batteries, are seeing their fortunes soar. Genetec, which chalked up a loss last year, has enjoyed a euphoric rise in its share price — from RM6 last month

to more than RM16 in less than three

weeks.

A research house, in a detailed report, positions the company as the forerunner among manufacturers in Malaysia supplying components for the EV sector. Apart from batteries, Genetec also produces components for the electronics sector.

Two months ago, speculation was rife that Genetec would be producing batteries for Tesla. But so far, it does not seem to be the case based on its revenue streams.

According to the research house, more than 87% of Genetec’s revenue comes from Europe, China and Thailand. Only 1% comes from the US, where Tesla is based.

Although Genetec is seeing a strong increase in its orders for the EV and battery sector, the contracts are short in nature — between three and nine months. One wonders what kind of margins the order book commands.

Ironically, Genetec completed its 10% share placement on June 4, an exercise in which the shares were valued at only RM3.33 each. Which raises the question if the company could have put off the exercise for a better valuation of its shares.

 

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