This article first appeared in Capital, The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

DOWNSTREAM steel products manufacturer Colform Group Bhd, (KL:COLFORM) which is debuting on Bursa Malaysia’s ACE Market on Monday, Feb 10, joins the growing list of Sabah-based companies listing on the local bourse.

Last year, companies from Sabah that were listed on the local bourse included beverage manufacturer Life Water Bhd (KL:LWSABAH), property developer KTI Landmark Bhd (KL:KTI) and construction player Azam Jaya Bhd (KL:AZAMJAYA).

Headquartered in Kota Kinabalu, Colform’s initial public offering (IPO) involves the public issue of 114.424 million new shares that will raise RM41.19 million for the company and an offer for sale of 54 million existing shares via a private placement to selected investors. At its IPO price of 36 sen a share, Colform will have a market capitalisation of RM216 million based on its enlarged share base of 600 million shares.

The biggest portion of the RM41.19 million will be used as working capital (RM18.1 million), with the rest to be used to set up a colour coil coating production line at Colform’s factory in Kota Kinabalu (RM9 million), expand its business to Peninsular Malaysia (RM5.1 million), build a storage facility (RM4.5 million), and cover listing expenses (RM4.5 million).

Through its subsidiaries, Colform manufactures and trades downstream steel products such as roofing sheets and accessories, wall cladding, decorative steel products, shutters, doors and window frames, floor decks and IBS steel framing systems. It also trades building materials.

Its customers include contractors, property developers, building material distributors/stockists, hardware shops, third-party downstream steel manufacturers and walk-in customers.

Colform operates in Kota Kinabalu and Sandakan, with one steel manufacturing and processing factory each in both locations.

“We have an established history of 22 years in the steel industry supplying our products to the construction industry in East Malaysia,” the company stated in its prospectus.

For the financial year ended Dec 31, 2023 (FY2023), the utilisation rates of the Kota Kinabalu factory for steel manufacturing and steel processing were 11.94% and 23.21%. For its Sandakan factory, they were 20.07% and 23.3%. Colform explained that the utilisation rates of its machinery and equipment “were generally low as we have a wide range of machinery and equipment used in the manufacturing of steel products with different profiles and specifications”.

Nevertheless, it said it is still expanding, specifically setting up a new colour coil coating production line at its Kota Kinabalu factory in order to reduce dependence on external suppliers of colour-coated coils which will enable Colform to better control the quality of raw materials and simultaneously control its raw material cost.

Its raw materials include steel coils, roofing coils and truss coils, which made up 88.42%, 81.48%, 74.19% and 66.44% of the group’s total purchases for FY2021, FY2022 and FY2023, and the eight-month financial period ended Aug 31, 2024 (FPE2024). As such, Colform warns that any material increase in global steel prices will affect its gross profit (GP) margin if it is unable to pass on the cost increase to customers.

This was highlighted in the prospectus as one of Colform’s risk factors, in addition to foreign exchange fluctuations, supply chain disruptions and dependency on managing director Kang Ket Hung. It also listed the execution of its business strategies, particularly the expansion to Peninsular Malaysia, as another risk.

Furthermore, the steel industry is exposed to various risks, namely its dependence on the construction sector, changes in steel import duty regulations, intense competition and changes in the political, regulatory and economic environment.

For FY2021, FY2022 and FY2023, Colform’s GP margin ranged from 22.72% to 31.63%, while its net profit margins were between 12.1% and 20.21% in those three years.

While it paid dividends in the last three years, it does not have a dividend policy so payment of dividends will be subject to the board’s discretion.

Kang and Kang Ming Trading Sdn Bhd are the promoters and substantial shareholders of Colform.

Kang, 44, has more than 22 years of experience in the manufacturing and trading of steel roofing and steel-related products. He has a Bachelor of Commerce in International Business and Electronic Commerce from Curtin University of Technology (now Curtin University) in Australia, where he worked for a year before returning to Malaysia in 2003 to help with the family business at Kang Ming Trading.

Under Kang, Kang Ming Trading formed a joint venture with another party to form Colform Sdn Bhd (CSB) to make steel roofing. CSB became a wholly owned unit of Colform in 2024.

In 2020, Frametech IBS Sdn Bhd (FISB) was set up to focus on the design, supply and installation of IBS steel framing systems. Last year, Colform acquired 65% of FISB.

FISB, CSB and CSB’s wholly owned unit Colform Steel Sdn Bhd are the three major subsidiaries of the group.

According to Smith Zander International, for FY2023, Colform captured a market share of 6.38% in the downstream steel industry in Sabah and Sarawak.

The independent market research company has forecast the downstream steel industry in the two states to record a compound annual growth rate (CAGR) of 3.84% from 2023 to 2025, driven by expansion of the construction and property industries as well as government initiatives for the construction of public infrastructure.

As for Peninsular Malaysia, where Colform intends to expand by setting up a branch office and factory in Klang, Selangor, Smith Zander International has forecast a CAGR of 3.78% for the downstream steel industry here from 2023 to 2025.

Post-IPO, Kang Ming Trading will have a 70.86% interest in Colform. 

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