Techbond uses bulk of IPO proceeds on Vietnam operations

by DASHVEENJIT KAUR/ pic credit:

TECHBOND Group Bhd has spent the bulk of RM39.6 million raised via its initial public offering in 2018 on the expansion of its Vietnam operations.

MD Lee Seng Thye said about 72% of the proceeds have gone to Vietnam while the expansion of its Malaysian operations uses 16.36% and the remaining 11.1% are used for listing expenses.

In an online investor briefing on Saturday, he shared that the cost for the construction of the second Vietnam-Singapore Industrial Park (VSIP1) factory complex in Binh Duong province was RM9.74 million while RM9.95 million was spent for the purchase of machineries and equipment.

Some RM6 million has been set aside for working capital, however, the commencement of operations at the new Vietnam factory has been postponed due to the Covid-19 outbreak.

As part of the company’s long-term strategy, Lee said a new factory complex is planned for in Vietnam while its existing Vietnam capabilities will be expanded to include a polymerisation plant and two new water-based adhesive manufacturing lines.

“The new factory is designed to supplement our existing production facilities in Binh Duong Province, which is currently focusing on producing water-based adhesives mainly for woodworking applications.

“It also focuses on the development and manufacturing of a base material, namely polyvinyl acetate (PVAc) polymer, as well as new types of water-based adhesives for paper and packaging applications. This will reduce the dependency of external suppliers,” he added.

Additionally, a polymerisation facility will be set up as part of the new VSIP2 Factory complex and following the commencement of operations, Techbond’s Malaysian operations will be importing the PVAc materials to produce water-based adhesives at its existing Shah Alam factory complex in Selangor.

“Our manufactured PVAc polymer will be used for our own production and be sold directly to customers. New types of water-based adhesives will be manufactured using our own PVAc polymer as the base material for both paper and packaging and woodworking applications.

“The delay in the installation of machineries in VSIP2 factory complex and commencement of manufacturing operations is not expected to have a material financial impact to the group,” Lee added.

Techbond has installed new manufacturing lines for hot melt adhesives and modified hybrid sealants as part of its phase one expansion at Shah Alam.

The Shah Alam phase two expansion involves new manufacturing lines for hot melt adhesives and purchasing new laboratory equipment.

For the purchase of machineries and equipment for the Shah Alam factory complex, the company has spent RM4.5 million and some 59% of the allocated RM1.2 million working capital has been utilised.

“As stated in the prospectus, Techbond estimated that RM5 million of the total IPO proceeds would be utilised for the listing expenses.

“The actual listing expenses incurred, however, was RM4.4 million and the balance of RM0.6 million will be utilised for the working capital on the expansion of Malaysia operations,” Lee said.

Techbond’s products and services are largely provided to customers outside Malaysia, and accounted for 78.6% of its total revenue for the financial year ended 2019 (FY19).

The company sells its industrial adhesives to customers in Vietnam, Indonesia, Brunei, Cambodia, China, Hong Kong, Sri Lanka, Indonesia, Liberia, Maldives, Singapore, Thailand, Uganda, United Arab Emirates, Oman, Laos, Myanmar and Philippines.

For the group’s nine-month period ended March 31, 2020, Techbond recorded a revenue of RM57.32 million, a decrease of RM3.9 million or 6.37% year-on-year from RM61.22 million it made in the previous corresponding financial period.

The group’s revenue was principally derived from sales to overseas markets, Lee said, with the decrease primarily due to softer demand.

Revenue for the three months’ period ended March 31, 2020, was RM17.11 million, a slight decrease of 0.06% from RM17.12 million in the previous corresponding quarter.

Profit before tax for the group was RM3.38 million, an increase of RM1.98 million or 141.43% from RM1.4 million in the previous corresponding quarter due to unrealised gain from the strengthening of US dollar against the ringgit and improvement in gross profit margin.

Techbond’s shares gained 78% year-to-date rising from 60 sen a piece to RM1.07 as of last Friday, thus giving it a market capitalisation of RM246 million.