by ANIS HAZIM / pic source: sengfongholdings.com

TA SECURITIES Holdings Bhd has ascribed a fair value of 88 sen for Main Market-bound Seng Fong Holdings Bhd, pegging a price-earnings multiple of 11.6% times for calendar year 2023 (CY23) earnings per share.

This represents a 20% discount to its regional peers’ market cap weighted average price-earnings ratio (PER) of 14.6 times for its relatively small market cap.

In an IPO note, TA Securities said based on Seng Fong’s IPO price of 75 sen, Seng Fong is valued at 10.4 times and 9.9 times CY22 and CY23 PER, respectively.

Seng Fong is principally involved in the processing of cup lump into block rubber and trades block rubbers directly, which are sourced from international rubber traders and/or natural rubber processors.

“Block rubbers produced are sold directly to end-user customers, the majority of them are tyre manufacturers and also international rubber traders,” TA Securities said in a note today.

Seng Fong’s products are mainly sold to overseas customers with its export sales contributing to approximately 99.9% of the group’s revenue in the financial year of 2019 (FY19), FY20 and FY21, with China being the main export destination.

The research house noted that Seng Fong’s estimated gross IPO proceeds of RM68.11 million are expected to be utilised for its working capital, repayment of bank borrowing, installation of biomass system, as well as listing expenses.

Meanwhile, the key competitive advantages for Seng Fong are proven track record in the rubber processing industry, being able to pass on the increase in cost to customers and an experienced management team.

However, it also sees the risks relating to business and industry including being highly dependent on major customers, foreign exchange risk and exposure to the price volatility and availability of raw materials.

On its outlook, the research house said the demand for tyres is expected to improve with the increase in the number of vehicles produced and sold, coupled with the replacement of worn-out tyres.

“As synthetic rubber still cannot completely replicate the distinct properties of natural rubber, we see the global demand for natural rubber is set to rise in the future,” it added.