Volcano Berhad IPO Review

Brief Breakdown

1. Breakdown of Shares – 165 mil shares @ RM 0.35 (Mkt cap RM 57,750,000)
   • 140 mil – No of shares issued (35 mil to Offer for Sale)
     • 14.4 mil by PP Identified investors
     • 20.6 mil by PP MITI
   • 25 mil – Public issued
     • 8.25 mil by Malaysian Public
     • 8.25 mil by Eligible directors (3), key management (3), employees (120)
     • 8.50 mil by PP to selected investors
   • Basis of price – PE Multiples 15.09 times
2. Key dates
   • 16 Mar – Open for application
   • 24 Mar – Close application
   • 26 Mar – Balloting process
   • 2 Apr – Allotment to successful applications
   • 6 Apr – Listing date in ACE Market
3. Proceeds of IPO

Business Model

VNP – Volcano Name Plate Sdn Bhd (100% Owned by Group)
VTT – Volcano Tec (Thailand) Co. Ltd (100% Owned by VNP)

Competitive Strength

• Support development of end-user market – E&E and Automotive
• Nameplates and plastic injection moulded parts for Thailand factory
• Wide range of manufacturing nameplates
• Strong customer portfolio – Hewlett Packard, Fisher & Paykel Thailand, Donaldson Thailand, Sharp Indonesia, Panasonic Thailand
• Experienced personnel for nameplates manufacturing
• Long business relationships

Strategies

• Purchase additional laser cutting machines & pick and paste machines – total costs RM 3.55 mil for 6 laser cutting machine, and RM 2 mil for pick and paste, expected to roll in the next 24 months.
• Purchase additional plastic injection moulding machine – total cost of 5 units RM 2.3 mil in over next 36 months.
• Expand factory in Rayong, Thailand – RM 4.81 mil over next 36 months
• Expand E&E and automotive industries in Thailand over next 36 months

Risks

• Dependent on senior managements
• Dependent on major customers
• Customers expectation
• Tax review IRB for VNP
• Financial performance fluctuation
• Raw materials fluctuation
• Unexpected equipment failures
• Foreign workers for manufacturing
• Retain ownership of moulds should customers switch providers
• Customer credit risks
• Adequate insurance coverage
• Economic, Political, Legal, Social environment risks
• Weather Risks

Key Personnels

• Dato Ch’ng Huat Seng – Co-Founder & MD, over 22 years’ experience (28mil shares)
• Gan Yew Thiam – Co-Founder, oversees operations (21mil shares)
• Dato Wong Tze Peng – Co-Founder, strategic planning (24.5mil shares)
•  Yeap Guan Seng – Co-Founder, overseeing R&D Group (10.5mil shares)
• Khoo Boo Wui – Promoter, Corporate affairs & financial reporting (21mil shares)

Timeline

• 1999 – Co-founders of VNP setup in Sg Lokan, Butterworth, Penang
• 2001 – Established R&D team
• 2002 – First order from HP (USA), Upgraded mechanical stamping method to hydraulic stamping
• 2003 – Rented 2 more shophouses
• 2004 – Moved entire operations to factory in Perai,
• 2007 – Expansion the Perai factory
• 2008 – Thailand operations began of VTT, granted tax exemptions for 8 years
• 2010 – Secured first order from a Swiss-based manufacturer
• 2011 – Secured order from German-based company
• 2012 – Secured customer Donaldson Thailand
• 2013 – Acquired first laser cutting machine
• 2015 – Decorative nameplates from USA-based provider
• 2016 – Secure Turkish-based as well Honda Malaysia SB
• 2017 – New orders from a different USA-based provider
• 2018 – First order from Sharp Indonesia
• 2019 – First order Mazda Malaysia  

Key Numbers

Simplified Profit & Loss Statement

Balance Sheet

Cash Flow

Revenue Breakdowns

Business Ratios

• The lower the Receivables Turnover days the better as Customer sales can be converted into Cash.
• Payables Turnover days low indicate Vendors are paid on a timely manner.
• Inventory Turnover suggests the time for the stocks/raw materials stored to be converted into sales.
• Current Ratio shows the ability for Volcano to cover their short-term (12 months) liability with it’s Current Assets (benchmark > 1)
• Gearing Ratio = debt exposure, Volcano does not have any loans over the past 3 years.

Dividend

They have distributed at least 30% of its PAT. In FY18/FY19/FY20, the group paid out 58%/42%/92% of its PAT.

Customers

Suppliers

Close Competitors & Related Industry

From the market’s perspective, Electronic Manufacturing Services (EMS) can serve as a leading indicator for Volcano’s potential movements as they are dependent on the end-user industry.

Market Outlook

(Extract from Smith Zander)

Industry described not publicly available nor tracked by any agencies, government bodies yet.

• Demand drivers
  • Global E&E industryGlobal E&E industry growth with CAGR 3.38% (2017-2019)
  • Global automotive industry – Increase in tandem
  • Wide range of applications for end-user industry
• Industry Risk
  • Dependent on growth of end-user
  • Technological advancement of manufacturing machine
• Market Performance for plastic injection moulded parts
  • USD 236.98bil (2017) to USD 259.49bil (2019) in value
  • 104.64mil tonnes (2017) to 112.01mil tonnes (2019)
  • Composition (based on research Feb 2021):
    • Electrical & Engineering industry 31.02%,
    • Automotive 15.18%,
    • Construction 10.74%

Analyst Coverage

Public Investment – TP RM 0.38 (8.5% upside)
(https://www.theedgemarkets.com/article/publicinvest-derives-fair-value-38-sen-ace-marketbound-volcano-bhd)

• Estimated fair value of 38 sen
• 12 times price-earnings (P/E) multiple
• FY22F earnings per share (EPS) of 3.1 sen
• Calculation: 12 x 0.031 = 0.372 ~ 0.38

TA Securities – TP RM 0.47 (34.3% upside)
(https://themalaysianreserve.com/2021/03/24/ta-securities-sees-upside-in-volcanos-ipo/)

• Estimated fair value of 47 sen
• (P/E) multiple of 12 times CY22 EPS of 3.9 sen
• Calculation: 12 x 0.039 = 0.468 ~ 0.47

Syariah Status

Neither the Syariah Advisory Council (SAC) nor Elzar Shariah Solutions & Advisory have yet to review it’s status. The next cycle review will be due on May 2021.

CEVWIT criteria

• Catalysts (C) – Dependent on end-user industry, players from the Electronic Manufacturing Services (EMS), Electrical & Engineering (E&E), as well as Automotive could play the driving factor in Volcano’s movements.
• Earnings (E) – With vaccine rollout plans are expected Globally, economies worldwide are expected to recover, which can directly impact the end-user industry and indirectly boost Volcano’s margin.
• Valuation (V) – As provided by Public Invest & TA Securities at 38 sen & 47 sen TPs respectively.
• Wyckoff (W) – Not rated, IPO Status, allow some time for the Wyckoff Cycle to form in various timeframe.
• Institutions (I) – Institutional investors are not stated, offered shares so far have been from the public and private investors. Monitor the key persons share movements for future reference.
• Technical (T) – Traders/Investors are encouraged to employ previous IPO knowledge to come to a decision and execute their own Trading Plan.

Disclaimer : Information above are intended for educational purposes only, and are not intended to give any form of recommendation for any specific investments. Investors / Traders must consider all relevant risk factors including their own personal financial situation as this involves risks and may not be suitable for all.