KUALA LUMPUR (June 14): Rubber processor producer and trader Seng Fong Holdings Bhd, en route to list on the Main Market of Bursa Malaysia on July 7, plans to raise RM68.1 million from its initial public offering (IPO) to part-finance expansion of its annual production capacity by 17% to 166,000 tonnes by 2023 from 142,000 tonnes currently.
“Our immediate objectives from the listing are to optimise production by increasing our total annual capacity through the hiring of additional workers for a second working shift and implementing ESG (environmental, social and governance) initiatives to make our business more sustainable," managing director Er Hock Lai said at the company's virtual IPO prospectus launch on Tuesday (June 14).
The company also intends to use part of the proceeds raised to further its ESG initiatives and repay bank borrowings.
Seng Fong senior manager in development and production Chong Wah Kiat said the company is unaffected by the shortage of foreign labourers and the new RM1,500 minimum wage per month set by the government effective May 1 as only 150 workers in Seng Fong earned below RM1,500.
Seng Fong’s IPO entails the issuance of 160.87 million shares or 31% of the company’s enlarged issued shares comprising a public issue of 90.81 million new shares and an offer for sale of 70.06 million shares at an issue price of 75 sen per share. The company’s enlarged total number of shares after IPO is 518.96 million shares.
Of the proceeds to be raised from the public issue, Seng Fong plans to use RM19.7 million for working capital, RM37.9 million for repayment of bank borrowings, RM6.3 million for the installation of biomass systems and the remaining RM4.2 million for listing expenses.
Er said the company’s bank borrowings had been used to instal two solar systems, which reduce its overall electricity expenses and will further its ESG initiatives.
“We are also allocating funds raised from the IPO for the installation of two biomass systems using wood chips and replacing diesel to reduce overall fuel costs for our factories. We estimate that the use of the solar systems will result in savings of RM2.6 million, while the biomass systems will help us save RM3.5 million.
“On top of the cost savings, the use of renewable energy to reduce electricity and fuel consumption is in line with our emphasis on having sustainable business operations and the need to conserve the environment,” Er added.
Based on the issue price of 75 sen per share, Seng Fong will achieve a market capitalisation of RM389.22 million upon listing on the Main Market on July 7. Applications for Seng Fong’s IPO will close on June 24.
Er also said that Seng Fong intends to recommend at least 50% of its annual net profit as dividends to shareholders, subject to the approval of the board of directors and shareholders.
In a filing with Bursa on Tuesday, Seng Fong posted a net profit of RM13.37 million on a revenue of RM261.94 million for the third financial quarter ended March 31, 2022, mainly derived from the processing and sale of natural rubber of various grades, principally SMR Grade and Premium Grade block rubber. Export sales contributed to 99.9% of the group’s revenue for the quarter.
For the cumulative nine-month period ended March 31, 2022, the company posted a net profit of RM31.32 million on a revenue of RM662.43 million, mainly driven by growing demand from its recurring customers involved in the tyre manufacturing industry.
Hong Leong Investment Bank Bhd (HLIB) is Seng Fong’s principal adviser, underwriter and placement agent for the IPO exercise. Other advisers and professionals involved are Rosli Dahlan Saravana Partnership, Crowe Malaysia PLT, Tricor Investor & Issuing House Services Sdn Bhd, and Smith Zander International Sdn Bhd.
According to HLIB vice-president of equity capital markets Suzanne Leong, the directors, promoters and offerors, together with the investment bank, have agreed and determined the IPO price at 75 sen, based on earnings per share of 6.7 sen for the financial year ended June 30, 2021 (FY21), which gives the company a price-earnings ratio (PER) of 11.2 times.
She said the stock valuation had taken into consideration the company’s competitive strengths, its business strategies and prospects.
HLIB head of equity markets Phang Siew Loong highlighted that based on the recently announced nine-month results of Seng Fong, the future PER will be below 10 times. “The earnings for FY22 are expected to improve further, and hence, the pricing in terms of the PER for FY22 on an annualised basis will be below 10 times,” he added.
Seng Fong posted a record RM34.62 million net profit for FY21, compared with RM12.74 million for FY20 and RM14.35 million for FY19. The company’s revenue for FY21 was also the highest in the past three years at RM768.17 million, compared with RM616.43 million for FY20 and RM636.83 million for FY19.