KUALA LUMPUR (Dec 29): Semico Capital Bhd has a unique position in the market as an arcade machine and toys distributor while its profit margins also appear lucrative, said Public Investment Bank.
The stock should be valued at 29 sen, about 16% above its initial public offering (IPO) price — around 20% discount to the Bursa Malaysia Consumer Index’s valuation — the research house said in an unrated report issued on Monday ahead of Semico’s listing.
“Despite its unique market positioning with no direct listed comparable and lucrative profit margins, we believe the discount is justified given Semico’s relatively small market capitalisation,” Public Investment said.
Priced at 25 sen per share, application for the IPO will close on Jan 2 and Semico is slated for listing on Jan 13. At the IPO price, Semico will have a market capitalisation of RM90 million upon listing.
TA Securities, which valued Semico at 33 sen in an unrated note issued last week earlier, also noted the company’s small market cap as well as its lack of upstream manufacturing exposure.
Semico ventured into the trading of video game arcade and amusement machines some two decades ago. The company now also operates one family entertainment centre located in The Mines.
The toys-and-collectibles division, meanwhile, involves wholesale and distributions to specialised convenience stores, hobbyist stores and toy stores, or to arcade operators as game prizes.
Semico’s gross margins have been resilient around 43%-49% in the past five fiscal years thanks to its “authorised distributorships, established relationships with suppliers and preferential pricing” that attract a broad base of clients, Public Investment said.
The research house expects an average annual earnings growth of 15% over the three years, reaching RM9.3 million by the financial year ending June 30, 2028, driven by expansion of the entertainment centres and toys and collectibles portfolio.
However, the house flagged key risks for Semico from shifting popular culture, social media, and consumer interests as well as competition from local and international players.
Public Investment also noted that Semico is reliant on the operators of Aeon Fantasy and mix.com.my — two clients which contributed nearly 42% of its revenue in the latest financial year.
“Termination or non-renewal of contractual arrangements with these two major customers may result in reduced sales, and replacement customers may not generate comparable sales or margins, which could adversely affect the group’s financial performance,” the house said.