Established in 1990, Synergy House (Synergy) has transformed to an e-commerce furniture exporter of ready-to-assemble (RTA) home furniture, specialising on the design, development and sale of the products. The company fully outsources its manufacturing works to third party manufacturers.
It has two business models, the first being business-to-business (B2B), which sold in bulk based on purchase orders (POs) to online retailers, chain-store retailers and wholesalers, identified CGSCIMB in the Trading Lens Report.
It’s business-to-consumer (B2C) arm sold directly to end-customers through in-house online store, www.synergytomato.com and third party e-commerce platforms, for example, Lazada, Shopee, Customer C Group’s e-commerce platforms and Amazon.
The range of RTA home furniture offered by Synergy comprises bedroom furniture, living room furniture and dining room furniture. Synergy primarily exports its products to the United Kingdom, followed by the United States of America (39%) and United Arab Emirates while other Asian countries make up the rest. Meanwhile, local sales contributed a minority 5% to the group’s financial year 2022 revenue.
Synergy recorded a 3-year revenue and core net profit compounded annual growth rate of 20% and 15% respectively, mainly lifted by its B2C segment, coupled with the growth in bedroom furniture and living room furniture by products. The improvement in the company’s bottom line also supported by a 4-year average net profit margin of 9%.
The organisation’s net profit rose 16% year-on-year to RM16.6 million in the financial year 2022. The company’s gross profit margin has improved across all segments except for the B2C segment due to more promotional activities offered during the period. The higher gross profit margin for the B2B sales segment was attributable to the upward revision in selling prices in financial year 2022.
In terms of net debt, Synergy’s net gearing stood at 0.8x as of 31 December 2022. Post initial public offering, Synergy does not have a fixed dividend policy.
Synergy plans to utilise 33% of the IPO proceeds of RM34.4 million for the purchase of inventories as well as racking system and forklifts for e-commerce fulfilment centres in Muar, Johor and overseas countries, followed by repayment of borrowings (29%), working capital (22%), estimated listing expenses (12%) and the balance for ecommerce advertising and promotions.
As of 12 April 2023, the group’s unfulfilled POs stood at RM2.03 million, which are expected to be recognised in 2023. Moving forward, Synergy will focus on growing its B2C segment through listing and selling affordable home furniture on more third-party e-commerce platforms.
The selling price for its in-house brand, GALANO (featured on Amazon) is below US$300 for bedroom furniture and below US$400 for living room furniture.
Synergy also plans to broaden its home furniture offerings by diversifying into bathroom furniture and kitchen furniture through D&D efforts. As at the LPD, Synergy has 2,047 designs of home furniture available for sale to customers.
On top of the expansion plan, the company intends to set up a new warehouse in Muar, Johor and Port Klang, Selangor respectively to serve as the e-commerce fulfilment centres. The proposed New Muar Warehouse is expected to consolidate and store inventory prior to shipment to overseas countries. Both new warehouses in Muar and Port Klang are targeted for commencement in 2023 and 2027 respectively.
Riding on the global furniture e-commerce sales trend as reflected by the compounded annual growth rate of 18%, according to SMITH ZANDER, the company is set to grow with an export market share of 1.7% in 2022.
Key risks identified by CGSCIMB include customer concentration risk on Hillsdale Furniture, LLC and Shop Direct Home Shopping Limited, fluctuations in manufacturing costs and foreign currency risk.
Synergy aims for listing on the Bursa Ace Market on 1st June 2023 with a target market capitalisation of RM215 million. The final day for initial public offering application will be on 18th May 2023.
