1. Business Overview
The Johor-based MTAG is a printing and materials converting specialist which provides printing of labels and stickers. It is also an authorized distributor for 3M and Henkel whereby it distributes industrial tapes and adhesive products. The group has more than 20 years of experience, serving more than 600 customers from various industries.
2. Utilisation of Proceeds
Out of the total RM 72.30 mil to be raised from the IPO, RM 33 mil or 45.6% of the proceeds are raised to build a factory on a 10 acres land in Senai/Tebrau. Its construction will be carried out in two phases. The first phase would comprise of a built-up area of approximately 200, 000 square feet and the second phase will be decided in the future. Its current facilities have a built-up area of 83, 500 square feet.
Besides, the group will also use RM 13 mil or 18% of the IPO proceeds to purchase 11 new machines to boost its annual production of labels and stickers. As for the remaining proceeds from the IPO, MTAG plans to use RM 10 mil for the repayment of existing bank borrowings, RM 3.8 mil to defray listing expenses and RM 12.5 mil for working capital purposes.
Figure 1.0: Utilization of proceeds
3. Business Prospects
Malaysian label printing and converting industry is estimated to grow from 2019 to 2023 at a CAGR of 8.2% to RM8.1 billion, driven by a broad range of end-user markets, such as consumer electronics, food and beverage as well as industrial products.
Guiding on the group’s prospects, management of MTAG expects higher demands from existing customers, TA IMS, SKP and V.S. Industry Bhd which supply semi-finished or finished appliances to Dyson. The fast-growing prospect of Dyson will also boost the growth of the MTAG.
On the other hand, the management expects that US-China trade war could be a good opportunity for MTAG as many Chinese firms might want to shift some of their production lines into Malaysia.
MTAG’s dividend policy will see 20% of the group’s earnings given to shareholders. What makes MTAG attractive is its dividend payout policy. The last IPO dividend was Greatec (listed in june 2019).
4. Post-IPO Shareholding Structure
Chaw Kam Shiang, group managing director, together with Lau Cher Liang, executive director, and Ang Yam Fung, chief human resources officer, are the group’s promoters and selling shareholders. Chaw currently holds a direct 63.1% stake, which will be reduced to 50.5% post-listing, while Lau’s 27.1% will be trimmed to 16.7% and Ang’s 8.7% to 2%. Total stake from the new investors will be 30% where 25% from public and 5 % from pink form allocation.
5. Financial Review
Figure 2.0: 2016-2018 MTAG’s Revenue
MTAG’s revenue had shown an encouraging improvement over the past three financial years. It was mainly contributed by a stronger demand for its converting services arising from Dyson’s new vacuum cleaner models.
From FY16 to FY18, MTAG’s customers who supply to Dyson accounted for more than 76% of its revenue. We would like to highlight on the high dependence of MTAG on Dyson related sales from its customers. As MTAG does not have any direct contracts with Dyson, its financial performance may be adversely affected if it fails to secure business in the future.
However, the group has established a good business relationship of more than 10 years with its key customers. Furthermore, the group has been working together with Dyson for more than 10 years in discussing and developing solutions on the materials selection and converting processes for the related components in Dyson’s products. Taking into account of all these factors, we see a slim probability for MTAG to lose out on its well-established business relationship.
Next, we did some adjustments to normalise the earnings on MTAG in order to analyse its profitability over the last 3 years.
Figure 3.0: Net profit adjusted for extraordinary items (Normalised earnings)
Zooming into the breakdown of the group’s profitability, we see an impressive cost management strategy from MTAG. Despite revenue and net profit surging rapidly, the group managed to improve its profit margin concurrently.
Furthermore, its net profits were backed by cash as its net operating cash flows made up a huge portion of its net profit.
Figure 4.0: Mtag’s Balance sheet 2016-2019
In terms of balance sheet strength, we expect the group to possess a healthy balance sheet with its net cash position exceeding RM100mn after raising fresh proceeds of RM72.3mn from the IPO. Prior to the IPO, its net cash position as at 9MFY19 stood at RM28.1mn.
In spite of tremendous revenue growth, its trade receivables increased at a slower rate which implies that its customers are paying their purchases on time.
|IPO Price||RM 0.53|
|Enlarged issued and paid-up share capital||681,617,400 shares|
|FY18 Core EPS||RM 0.051|
|IPO PE Ratio (IPO price/ Existing EPS)||10.5x|
|Peers’ average traded PE||15x|
|Target Price (assuming PE of 12 and CAGR of 8.2%)||RM 0.77|
Given that the current Dyson related stocks (VS and SKPRES) are trading at trailing PE of around 15x, we believe the MTAG should be traded with at least 12x PE. Assuming an industry matching CAGR of 8.2%, we value MTAG at RM0.77 based on a forecasted EPS of 6.5 cents in FY22.
Figure 5.0: Timetable for MTAG IPO
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