Mercury Securities has put a “SUBSCRIBE” recommendation on Yew Lee Pacific Group Berhad in its coverage of this IPO. The broker house has ser a target price (TP) of RM0.33 based on FY23F EPS of 2.3 sen and a PE of 14.4x which is a 40% discount to the industrial sector 5-year average PE.
The “SUBSCRIBE” recommendation is made based on Yew Lee’s strong market presence in Malaysia’s industrial brush industry, and vast geographical footprint across Asia. The target price represents a potential return of 18.0% over the IPO price.
Strong market presence. Yew Lee is one of the largest players in Malaysia’s industrial brush industry, commanding a market share of 12.4% of the RM254.5m industry size in Malaysia as of 2021. As of FYE 2021, the manufacturing segment contributes 70.3% to the company’s revenue. To expand its revenue and to further strengthen its market share, the company plans to expand the range of industrial brushes to cater to specific manufacturing needs of other end-customers from the quarry, semiconductor, and glass-making sector.
Mercury is of the opinion that the expansion plans online, the company is well-positioned to expand its presence locally on the backdrop of a growing Malaysian industrial brush industry which is projected by Protégé Associates to grow at a 5-year CAGR of 9.6% from 2022 to 2026.
Vast geographical footprint in the Asian market. Yew Lee also has a vast geographical footprint in the Asian market, supplying industrial brushes, industrial hardware, and machinery part to markets such as Thailand and Indonesia via Yew
Lee Thailand and Yew Lee Indonesia. As of FYE 2021, oversea sales contribute more than 15% to the group’s revenue.
Less labour intensive. To reduce the dependency on manual labour and reduce overhead costs, the company plans to increase automation levels of its manufacturing process by acquiring additional automated equipment and machineries. This will increase the automation of its manufacturing process and improve operating capacity of the manufacturing process for its industrial brushes by approximately 1.19 million pieces of industrial brushes per annum.
Experienced management team. The company has an experienced management team spearheaded by MD Mr Ang Lee Leong who has more than 36 years of experience in the industrial hardware and industrial brushes industry.
Risk factor: Fluctuation of raw material prices.
Salient Points on the listing:-
Ace Market
Industrial Products
IPO Price: RM0.28
Fair Value: RM0.33
Listing Date: 7 June 22
New Shares (m): 133.11
Offer For Sale (m): 26.62
Funds Raised (RM m): 37.3
