This article first appeared in Capital, The Edge Malaysia Weekly on December 16, 2024 - December 22, 2024

WINSTAR Capital Bhd (KL:WINSTAR), which has been in the midstream and downstream segments of the aluminium industry for two decades, will be the final initial public offering (IPO) on Bursa Malaysia this year.

Winstar converts billets into extruded aluminium profiles used in fabricating building materials such as window and door frames. It also fabricates aluminium ladders and aluminium solar photovoltaic (PV) mounting structures.

The IPO on the Ace Market involves a public issue of 56.55 million new shares and an offer for sale of 17.4 million existing shares at 35 sen per share.

Winstar will raise RM19.79 million from the issuance of new shares to the public. Of this, 48.5% or RM9.55 million is allocated for capital expenditure for the purchase of new aluminium extrusion press machines and equipment, 31.5% or RM6.24 million is for working capital requirements, and the remaining RM4 million for listing expenses.

According to the independent market research report by Protégé Associates that is included in the listing prospectus, Winstar’s gross profit margin of 19.8% is above that of its peers, which range from 5.0% to 18.9%.

Chief operating officer Lee Yong Zhi attributes the company’s superior margin to its strategy of having a large customer base, with the majority made up of small and medium enterprise (SME) buyers, and a time-to-market execution of as short as two days.

“For the small and medium-size buyers, the most important thing is service. If I want it today, and I call you today, you’d better deliver the next day. Customers are willing to pay if you can deliver. And for us, we thrive on this and [this] is how we can command good margins,” Lee tells The Edge.

Aside from aluminium extrusion, Winstar also trades and distributes building materials from an extensive portfolio of about 5,300 stock keeping units that include extruded aluminium profiles, stainless steel products, aluminium products, silicone sealants and ironmongery products, catering to customers in the construction, property development and manufacturing industries.

Lee also highlights that the company does not impose a minimum purchase quantity on customers as this is part of its strategy to entice buyers to purchase other ancillary building material products as well.

By serving the SME segment, Winstar faces fewer collection problems compared with bigger players that make sizeable purchase orders but demand better payment terms and competitive pricing.

“We currently have 16 in-house lorries delivering our products to more than 300 touchpoints each day, and we can achieve ‘order today, fulfilment next day’. Not many competitors can match this scale,” says Winstar’s CEO Vincent Chua Boon Hong.

The company’s revenue increased from RM89.75 million in FY2021 to RM153.69 million in FY2023, representing a compound annual growth rate (CAGR) of 30.9% over the three years. In the same period, net profit grew from RM2.63 million to RM8.02 million, for a CAGR of 74.8%.

Lee attributes the performance to the increase in its customer base, which grew from 2,377 in FY2021 to 3,150 as at July 2024.

From early 2024, Winstar began fabricating aluminium solar PV mounting structures and providing solar PV system installation services, leveraging on the know-how of its strategic investor, ACE-listed Sunview Group Bhd (KL:SUNVIEW). Sunview holds a 30% stake in the company through its wholly owned subsidiary Vafe System Sdn Bhd.

Sunview, an engineering, procurement, construction and commissioning (EPCC) provider of solar PV facilities, has completed more than 386 megawatts (mw) of installation capacity.

Chua notes that while Winstar operates independently of Sunview, the latter has provided tremendous insights to Winstar to develop products within a short timeframe.

As at October this year, Winstar had secured RM11.11 million in orders for aluminium solar PV mounting structures and accessories, of which RM4.76 million was from third parties and the rest from Sunview.

So far, Winstar has completed installations of PV mounting systems for projects totalling 35.8mw. It is currently in talks for various projects with installation capacity of up to 80mw.

Lee sees bright prospects for the solar division, which made up less than 1% of Winstar’s total revenue in FY2023. Aluminium extrusion contributed 57.22% while trading and distribution of building materials accounted for 34.72%. He points out that the total addressable market for solar mounting structures stood at RM300 million, based on an estimated 5% of RM6 billion of engineering, procurement, construction and commissioning (EPCC) jobs expected to be generated from the Fifth Large Scale Solar, or LSS5, programme.

On Nov 15, China announced that it would end the 13% tax rebate on exports of semi-manufactured aluminium products starting Dec 1, which will benefit local aluminium manufacturers such as Winstar.

“[It’s] definitely a positive for the industry without the price dumping from China. On top of that, we are physically present here and do not have shipment delay problems. We are also here for after-sales service,” Chua says.

He adds that China will also reduce tax rebates on solar PV brackets to 9% from 13%. Furthermore, the sales and service tax for the logistics sector is set to increase from 6% to 8%.

These developments will erode the competitiveness of Winstar’s peers in China.

Winstar operates four aluminium extrusion lines at its Ijok factory, which has a total capacity of 6,705 tonnes. Currently, three lines are running near full capacity.

To meet growing demand, it plans to add four new extrusion lines in its new factory adjacent to the current production facilities, boosting its total manufacturing capacity by about 128% to 15,285 tonnes annually.

The first two additional lines are slated for commissioning by the third quarter of 2025, with the remaining two expected to be operational by the second quarter of 2026. The new machines are more efficient and have a higher productivity output of 20% compared to the older equipment.

Chua says it is not worried about using up the newly installed capacity as its trading segment is seeing robust demand and it has had to buy some extruded aluminium profiles from third parties.

“Many people install new machines and then try to look for customers, but we already had business on hand, and we do not need to worry about a demand gap. By filling up the supply void, there will be an enhancement in margin,” he explains.

For the latest financial year ended Dec 31, 2023, about 28.9% of Winstar’s total revenue was attributed to the trading of extruded aluminium profiles.

In line with its expansion plans, the company has set an internal target of double-digit revenue growth over the next three years. Chua is optimistic about meeting the target, given the vibrancy of both the public and private segments of the construction sector. The secular tailwinds of the renewable energy sector also add to his confidence.

Winstar currently sources about 43.4% of its total purchases from a single supplier, Formosa Shyen Horng Metal Sdn Bhd, a wholly-owned subsidiary of Main Market listed A-Rank Bhd (KL:ARANK).

Lee says Winstar has been purchasing from Formosa for over 20 years because of the excellent quality of its products and services. He downplays the concentration risk and explains that the aluminium billet supply market is widely accessible internationally.

The company has a low pricing risk for raw materials, as it quotes its products upon customer enquiries and sells on a cost-plus basis.

Post-IPO, Winstar plans to adopt a formal dividend policy, targeting a dividend payout of at least 30%.

Currently, the four brokers that cover the stock project higher fair values than its IPO price of 35 sen. They range from Public Investment Bank’s 48 sen to RHB Research’s 61 sen — an average of 54.3 sen — implying returns of 37.1% to 74.3%.

Based on the blended average of the four brokers, Winstar’s net profit is expected to grow 35.5% in FY2025, while revenue is anticipated to grow 25.2%.

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