by SHAZNI ONG/ pic by ARIF KARTONO
ACE Market-bound Powerwell Holdings Bhd’s earnings growth is expected to be muted through the financial years ending Dec 31, 2019 (FY19) and FY20, analysts observed.
Lower average project value in FY19 and a recognition of RM3.1 million worth of listing expenses in FY20 will offset the firm’s improved margins subsequent to higher operating efficiency and from the enterprise resource planning (ERP) upgrade, Inter-Pacific Research Sdn Bhd wrote in a recent note.
The research firm has a fair value of 22 sen on Powerwell, based on a price-to-earnings ratio of 12 times the group’s forecast FY20 earnings, parallel to the FTSE Bursa Malaysia Small Cap Index’s valuation.
Powerwell’s IPO is priced at 25 sen a share.
It said the power distribution management company’s investment strengths include compliance with internationally recognised stands, an established track record, a strong balance sheet and being consistently profitable.
Risks include a slowdown in construction activities and no long-term contracts, failing client audits or breach of agreement terms, unsuccessful commercialisation of the “Powerwell” brand, industry competition, reliance on foreign labour and labour costs hikes.
Powerwell said on Jan 14 the public tranche of its IPO had been oversubscribed by 24.27 times.
The company received 7,219 applications for 601.38 million shares valued at RM150.34 million, for 2.38 million shares made available for application by the Malaysian public.
“We managed to secure orders of over RM15 million which are expected to be delivered this year,” Powerwell MD Jason Tham (picture) said.
The IPO entails a public issue of 87.4 million shares and an offer for sale of 58.06 million existing shares.
The group seeks to raise RM21.85 million from the listing exercise to strengthen and expand its electricity distribution product manufacturing business.
It also intends to grow its replacement market business as it sees growth opportunities in this area, with existing buildings due for refurbishments or upgrades to prolong their lifespan.
Despite the tough market sentiment expected this year, the company is confident its IPO will be a success, driven by its extensive experience in the electricity distribution industry and a proven track record, its ED Ricky Lee said at the launch of the IPO prospectus in Kuala Lumpur earlier this month.
Powerwell is expected to debut on the ACE Market of Bursa Malaysia on Jan 22. Upon listing, the company will have a market capitalisation of RM145.14 million based on its enlarged share capital of 580.55 million shares.
Of the RM21.85 million to be raised from the exercise, RM10.27 million has been earmarked for capital expenditure, involving the purchase of machinery and equipment, and the enhancement of Powerwell’s ERP systems and hardware.
The company also aims to improve manufacturing processing efficiency and boost production capacity.
Some RM3.87 million will be allocated for certification expenditure for a range of Powerwellbranded products, RM3.62 million for working capital purposes and the remaining RM4.1 million for estimated listing expenses.
Mercury Securities Sdn Bhd is the sole underwriter, principal advisor, sponsor and sole placement agent for the listing exercise, while BDO Capital Consultants Sdn Bhd is the financial advisor.