by S BIRRUNTHA / pic source: sengfongholdings.com
MERCURY Securities Sdn Bhd is recommending investors to ‘Subscribe’ to Seng Fong Holdings Bhd with a target price (TP) of 82 sen based on financial year ending June 30, 2023 (FY23), earnings per share of 7.2 sen and a price-earnings ratio of 11.4 times in line with the industrial sector’s one-year forward.
In a note today, the research firm said Seng Fong has attractive growth prospects and a strong track record on the back of an expanding world vehicle sector, which is expected to grow at a five-year compound annual growth rate (CAGR) of 7.03% from 2021 to 2025.
It added that the natural rubber processor’s TP represents a potential return of 9.3% over the IPO price.
Seng Fong is soon-to-be listed on Bursa Malaysia’s Main Market on July 7, at an IPO price of 75 sen.
Meanwhile, Mercury Securities said Seng Fong had a strong export market share of 11.79% in FY21 against the export volume of block rubber from Malaysia.
It said the company had also captured an export market share to China of 14.78% against Malaysia’s export volume of block rubber to the country.
“The business is driven by export demands from clients in China, Taiwan and India, among others.
“For the past three years from FY19 to FY21, export sales represented approximately 99% of the company’s revenue,” it noted.
The research house also added that the company intends to improve its production capacity by increasing production hours to 17 hours per day, in addition to adding a second working shift with an additional 48 and 45 new workers in Factories 2 and 3 respectively.
It said this is expected to improve the company’s total annual production capacity to 166,000 metric tonnes per annum by the third quarter of 2023, in line with its annual production capacity growth which is expected at a CAGR of 11.5% from 1986 to 2023.
In line with that, Mercury Securities also said Seng Fong has a strong track record in the rubber processing industry and the company is a reputable natural rubber processor with more than 36 years of experience in the rubber processing industry.
It noted that the company has a healthy relationship with its customers and suppliers and the top five major customers’ length of relationship with Seng Fong spans up to 14 years, contributing RM646.8 million to its revenue in FY21.