Investec has upgraded Kaynes Technology and Syrma SGS from ‘Sell’ to ‘Hold’, following a sharp correction in share prices, making valuations appear more reasonable.
The brokerage remains bullish on the broader EMS (Electronics Manufacturing Services) sector, acknowledging the significant growth opportunities, but maintains concerns over:
- Low barriers to entry, which could intensify competition.
- High working capital intensity and weak cash flow generation for PCBA (Printed Circuit Board Assembly) companies.
Among EMS players, Investec continues to prefer Dixon Technologies and Amber Enterprises, citing:
- Dixon’s capital efficiency, cost competitiveness, and agile management approach.
- Amber’s strong RoICs (Return on Invested Capital) in its Electronics and Railways segments, even as its consumer durables business faces competitive pressure.
While growth in the EMS sector remains attractive, Investec advises selective stock-picking due to inherent business model challenges.
