Thursday, October 17, 2019

Spring Art Holding Berhad

IPO Rating (1.75 out of 5.0 Stars)

Copyright@http://lchipo.blogspot.com/

Date
Open to apply: 16/10/2019
Close to apply: 24/10/2019
Listing date: 08/11/2019

Share Capital
Market Cap: RM103.921 mil
Total Shares: 415.687 mil shares (IPO 20.784 mil, Company Insider/Miti/Private Placement 103.9216 mil)

Business
Design & Development, Manufacturing of furniture products.
India: 27.5%
Japan: 5.4%
UAE: 23.2%
Saudi Arabia: 33.1%
Canada: 2.1%
Bahrain: 7.4%
Others: 1.3%

Fundamental
Market: Ace Market
Price: RM0.25 (eps: RM0.015)
P/E & ROE: PE16.67, ROE10.58%
Cash & fixed deposit after IPO: RM0.000021 per shares
NA after IPO: RM0.14
Total debt to current asset after IPO: 0.8799 (Debt: 21.888 mil, Non-Current Asset: 55.864 mil, Current asset: 24.875 mil)
Dividend policy: No formal dividend policy.

Financial Ratio
Trade receivable: 32 days
Trade Payable: 33 days
Inventory turnover: 70 days

Operation Output Utilisation Rate
2019: 94.9%
2018: 92.5%
2017: 91.8%
2016: 93.4%
2015: 92.0%

Past Financial Proformance (Revenue, EPS)
2019 (4mths): RM18.297 mil (EPS: 0.006)
2018: RM50.382 mil (EPS: 0.015)
2017: RM48.276 mil (EPS: 0.019)
2016: RM41.287 mil (EPS: 0.018)
2015: RM36.425 mil (EPS: 0.017)

Net Profit Margin
2019: 14.1%
2018: 12.4%
2017: 16.3%
2016: 18.1%
2015: 19.8%

After IPO Sharesholding
Haji Ismail Bin Tunggak: 0.07%
Lim Kok Eng: 56%
Kwan Chian Poh: 14%
Law Sang Thiam: 0.07%
Tan Meng Loon: 0.07%

Director & Key Managemen Remuneration for FYE2019 (from gross profit 2018)
Haji Ismail Bin Tunggak: RM38K
Lim Kok Eng: RM510K
Kwan Chian Poh: RM440K
Law Sang Thiam: RM39K
Tan Meng Loon: RM38K
Total director remuneration from gross profit: RM1.065 mil or 7.4%

Key Management Remuration
Teo Miow Loo: RM200k-250k
Peter Teo Swee Chyang: RM50k-100k
Loo Soon Chuan: RM50k-100k
Lim Vivian: RM1-50k
Ahmad Mahdzir Bin Joffri: RM1-50k
key management remuneration from gross profit: RM0.300-0.550 mil or 2.09-3.82%

Use of fund
Machinery for Factory C : RM17.55 mil (71.9%)
General Working Capital: RM3.672 mil (15%)
Listing expenses: RM3.2 mil (13.1%)

Competitors (PE & ROE)
Sernkou: PE 17.54, ROE 13.03
SWSCAP: Loss making
SHH: Loss making
WEGMAS: PE 9.13, ROE 19.87
EUROSPAN: loss making
SENG YIP: ROE 11.93
TECHCENTIAL: ROE 16.24
SAMLING HOUSING: ROE 11.94
GREEN RIVER: ROE 1.45
AX FURNITURE: ROE 4.97
VALUE PLUS INDS: ROE 5.46

Industry Analysis (CAGR growth rate)
Furniture Production (Msia): 5.0%
Furniture export: 2.7%
Home & Office export: 5.5%
Furniture import: 9.9%

Conclusions
Good thing is:
1. Operation ulitisation rate is almost full.
2. Net profit margin is above 10%.
3. Almost all IPO fund use to expand business.
4. Completed of Factory C will increase production capability from 337,106 units to 674,000 units.
5. Stronger USD is benefit to the company.

The bad things:
1. Listing on Ace Market.
2. PE is around country PE (doesn't discount to country PE)
3. Debt compare to current asset is just enough to cover, turnover of company cashflow is important to the company.
4. Revenue not consider growing if add in inflation rate 6% & USDMYR rate.
5. Total Director & key management remuration is more than 10% of gross profit.
6. Furniture industry is growing at CAGR 5.0%
7. Still have some competitors is better then Spring Art.

Conclusions
Is not a discount IPO. Price is just average to market. With the increase of capability units (almost double of production), revenue should able to increase better. The Factory C will be able to start operating in July 2020. Price movement should not increase much around 6 month before the July 2020.

IPO Price: RM0.25
Good time: RM0.38 (PE16, with 60% production capability increase of revenue, should not before July 2020)
Bad time: RM0.175 (PE9, with 30% production capability increase of revenue, should not before July 2020)