Soon to be listed Crest Group is a regional distributor of imaging, analytical, and test solutions equipment which is primarily used for quality inspection, sample analysis, and research and development (R&D). The group’s key competitive edge is anchored by the exclusive distributorships with 12 brand principals (out of 23), enabling it to offer a wider selection of products and comprehensive solutions according to its customers’ requirements.
The group has a diverse clientele base across semiconductor, electrical and electronics (E&E), academic, automotive, oil and gas, aviation, life sciences and healthcare. It currently, operates in Malaysia (51% of 4MFY24 revenue), China (20%), Thailand (17%) and Singapore (5%). The balance 7% is contributed by customers in Hong Kong, Vietnam and Brunei. In 2023, the company garnered a minimal 0.97% market share in the local imaging, analysis and testing industry.
In its view of the company and its impending IPO, CGS has released an analysis of the company and its valuation proposition.
The group’s revenue and earnings have been on the upward trajectory with a 3-year revenue and net profit CAGR of 15% and 19% respectively in FY20-23, on the back of average gross profit (GP) margin and net profit margin of 28% and 10%.
Key revenue and earnings drivers: customers’ expansion plans and 2) increase of overseas revenue and higher margin product mix. 4MFY24 core PATAMI rose 5% yoy to RM4m despite lower revenue (-1% yoy), thanks to higher margin product mix (i.e. optical and portable equipment – GP margin: 27%).
Near-term earnings visibility is supported by contract liabilities of RM9.7m as at end April 2024 while delivery lead time typically takes 2 weeks to 4 months, subject to the project complexity.
Crest Group is a net cash company. As at end April 24, Crest Group’s net cash position stood at RM32.5m (3.8sen/share), making up 11% of its target market capitalisation. Does the company pay any dividends?Post-IPO, the group aims for a dividend policy of minimum 30% of PAT. The group has been paying dividends in FY20-23 with a payout ratio of 12%-123% of its net profit.
So what are its business plans? The group said it plans to consolidate and streamline its operations in Klang Valley by setting up a new headquarters (HQ) in Selangor (vs. 3 offices in Selangor and 1 office in Penang currently). The new office will include a 186 sq. m. demonstration room to house its products and used for internal training.
It also targets to purchase new models of equipment to be showcased in Malaysia, China, and Thailand offices. The exhibition of newly-developed equipment is expected to enhance customer experience by presenting advanced solutions and capturing trends. Crest Group is set to purchase 3 units of advanced imaging equipment (17% of 4MFY24 revenue, GP margin: 21%) and 3 units of sample management equipment (6%, GP margin: 29%).
As part of its overseas expansion strategy, the company plans to establish a new branch office in Ho Chi Minh City, Vietnam (less than 7% of 4MFY24 revenue).
The IPO is set to raise total proceeds of RM45.7m. Of the proceeds raised, 34% (RM15.8m) will be used to set up a new centralised HQ, 32% (RM14.5m) for business expansion, 13% (RM5.9m) to purchase additional demonstration equipment, 8% (RM3.6m) to expand technical support and maintenance team while the balance is for estimated listing expenses.
CGS said key risks to the group include: Slower-than-expected recovery in the semiconductor sector, Supply chain disruptions,
Availability of talents and Fluctuations in foreign exchange (99% of 4MFY24 purchases and 63% of 4MFY24 sales denominated in foreign currencies).
While key competitive strengths: Regional presence catering to a diverse customer base, Exclusive distributorship with 12 brand principals and Technical expertise with proven track record spanning 25 years since business inception in 1999.
In terms of valuation, the IPO price of RM0.35 (RM303m market capitalisation) values Crest Group at a core FY23 P/E of 15.1x and annualised FY24 P/E of 25x. On an ex-cash basis, Crest Group trades at a compelling FY23 P/E of 12.7x – 42% discount to its comparable peers’ average FY23 P/E of 21.9x.
Meanwhile, Bursa Malaysia Small Cap Index (FBMSC) and Bursa Malaysia Industrial Production Index’s (KLPRO) FY23 P/E stood at 18.3x and 33.9x respectively, according to Bloomberg.
