RHB Research has covered YX Precious Metals (YXPM) in its IPO Note. As the research house expects YXPM to raise MYR31.3m from its IPO for the purchase of new machinery and equipment, and raw materials, as well as the expansion and upgrading of operational facilities. Through the expansion of the hollow gold jewellery range and provision of refining and assaying services to external customers, it will have a complete range of services for its customers and grow market share. Overall, it is estimated it to book FY21-24F earnings CAGR of 16%. MYR0.33 FV on 12x FY23F P/E.
Expansion of hollow gold jewellery range. YXPM is looking to acquire new machinery and equipment for the expansion of its hollow gold jewellery range – ie hollow gold rope chin, hollow gold pendants, charms and earrings using electroforming. Given the rise in gold prices and the increase in consumer demand for hollow or lightweight gold jewellery, it is believed the affordable and trendy hollow gold jewellery will allow the group to target the affordable segment. As the one-stop supply centre offers customers the option to purchase in small quantities, and with a variety of designs, the research house believes this gives an edge against its peers, and eventually helps increase market share.
Expansion and upgrading of operational facilities. The group is looking to increase automation in order to improve efficiency, reduce reliance on manual labour, as well as increase its chain linking output in length by c.39%. Also, the migration to the new enterprise resource planning (ERP) system and manufacturing execution system (MES) by 4Q22 will help to streamline and integrate its wholesaling and manufacturing business, and backroom operations, thereby improving the decision making process.
Provision of refining and assaying services to external customers. Currently, about 3% of the existing refining capacity (c.4kg of scrap gold/day) is catered to external customers. Upon commencement of the new refining plant by 3Q22 – that can refine 20kg of scrap gold/day – this should be able to cater to more external customers. As for the assaying services, it targets to obtain accreditation from the Department of Standards Malaysia (DOSM) by 3Q22. By then, its subsidiary will be a certified assaying company to serve external customers – enabling it to have a complete range of services.
Improving financials. As at FY21, net gearing improved to 0.15x, from 0.23x in FY20, mainly due to higher retained earnings and lower interest bearing borrowings. Post listing, YXPM is expected to be in a net cash position from FY22F, with FY22F-24F ROE at c.10%, as earnings accumulate over time. With more automation and improved efficiency, there would be progressive improvement in FY22F-24F margin of 3.1-3.8%.
Earnings forecasts. The research house estimates FY22F-24F PAT at MYR8.0-11.1m, assuming gold price at MYR258/gm for FY22F and normalising to c.MYR239- 240/gm for FY23F-24F (similar to FY21 level), with demand to remain intact through recovery of economic and social activities, supported by expansion of product range and operation facilities. As volume is the key to growth, the analyst estimates FY21-24F volume CAGR of 3.5%, which is deemed as encouraging, given the high base in FY21. This is premised on no significant delays caused by heightened movement restrictions, or disruptions in business operations.
Risks: Ongoing pandemic and future outbreak causing business disruption, fluctuation in global gold prices, and dependence on raw materials.
Salient points on YXPM IPO:
Fair Value (Return) MYR0.33 (+18%)
IPO Price: MYR0.28
Closing Application Date: 9 Jun 2022
Indicative Listing Date 23 Jun 2022
