Eye on SkyeChip’s valuation

THE expected valuation of soon-to-be-listed SkyeChip Bhd will be closely watched, given its business nature, sector positioning, and Malaysia’s tendency to assign premium valuations to market leaders in the semiconductor industry.

SkyeChip’s initial public offering (IPO) plans are clear, as it filed its prospectus exposure last week.

If all goes well, the company will launch its official prospectus that would allow investors to know how much Skyechip’s IPO will be priced at.

SkyeChip designs integrated circuits (IC) chips, placing it at the apex of the sector.

Malaysia’s semiconductor industry includes standout stocks that often receive high valuations.

ViTrox Corp Bhd, a producer of automated test equipment, has a historical price-to-earnings (PE) ratio of 72 times, while Inari Amertron Bhd trades at a multiple of 38 times.

Will SkyeChip be priced at those high levels, or will investors set more realistic expectations?

“The first thing to note is that this company is at its early stage of growth. It doesn’t have the proven track record of bigger listed semiconductor companies,” notes one fund manager.

Aside from that, a few other issues could dampen any euphoria surrounding SkyeChip.

The artificial intelligence (AI) bubble, driven by big-tech capital expenditures on AI chips and data centres, often financed through rising debt, has raised concerns about valuations outpacing fundamentals.

Recent earnings from the Magnificent 7 tech stocks, though strong, failed to ease these fears, with disciplined companies rewarded and those overpromising on AI growth penalised.

Then, there is Oppstar Bhd, the first IC designer to list on the Malaysian market. It debuted on Bursa Malaysia in March 2023 with a PE ratio of 24.14 times.

However, within a year and a half, the company reported losses. Its share price plummeted from an all-time high of RM2.40 to just 37 sen today.

What lies ahead for SkyeChip?

While Oppstar focuses on offering IC-design services and handling contract design projects, SkyeChip specialises in creating custom chips and developing IP blocks like memory controllers.

These are tailored for high-performance computing and AI, making them ideal for demanding applications in data centres and robotics.

For Oppstar, turnkey services drive the bulk of its earnings, with China serving as its primary market.

The company demonstrated remarkable growth in revenue and profitability from 2020 to 2022, during which time its gross profit margin surged from 20% to nearly 60%.

Analysts were enthusiastic, assigning strong “buy” ratings and target prices based on a forward PE of up to 30 times.

However, optimism waned when Oppstar reported its first quarterly loss of RM1.7mil in the second quarter ended Sept 30, 2024.

Losses for its full year ended March 31, 2025, reached a staggering RM12.22mil.

It has remained in the red in its subsequent two quarters.

Oppstar’s woes are attributed to a slowdown in turnkey design services. This coupled with rising labour costs, further strained financial performance.

Several factors contributed to this decline, including reduced demand from China, global economic challenges, trade tensions and tariff uncertainties.

These issues have raised concerns among investors about the long-term sustainability of earnings for SkyeChip.

SkyeChip’s draft IPO prospectus highlights that nearly 90% of its revenue came from sales to China and Taiwan.

The company’s revenue grew significantly, rising from RM57.2mil in financial year 2023 (FY23) to RM119.5mil in FY25. Gross profits increased from RM33.8mil to RM50.4mil over the same period.

However, gross profit margins declined, dropping from 59.1% in FY23 to 46.8% in FY24, and further to 42.2% in FY25.

SkyeChip attributes this decline to higher staff costs, increased depreciation, and increased expenses for semiconductor materials and manufacturing services used in its design business.

SkyeChip emphasises its competitive strengths, particularly its memory interface intellectual properties (IPs), which are essential for enabling chips to communicate with memory devices.

These IPs are described as a “translator and traffic controller” between a chip’s processor and external memory.

The company also highlights its strong relationship with leading wafer foundries, a skilled technical team, and its ability to deliver customised design solutions for clients.

It remains to be seen which peer comparisons SkyeChip will use when pricing its IPO.

A positive indication is that only new shares are being issued, which is unsurprising given the company’s relatively recent formation five years ago.

Of the IPO proceeds, 60% will fund research and development, 16% will expand facilities, and 10% will acquire design software tools.

However, some investors are concerned about the company’s significant China exposure.

SkyeChip has noted that tariffs and sanctions on high-tech products, services and equipment by the US and some European nations could impact sales of its advanced IC designs in China and other affected regions.

Additionally, the fragility of businesses filling gaps caused by US-China tensions raises further concerns.

Unable to access certain US products and services, some Chinese companies turn to alternatives like Malaysia and Vietnam.

However, as a Penang-based semiconductor CEO notes, these arrangements often lack customer stickiness.

“Clients may switch to cheap alternatives if opportunities arise, or the need for South-East Asian companies could diminish if US-China tensions ease,” he says.