Offering complementary products and services, i-Stone Group Bhd (iStone) is principally involved in manufacturing automation business, with a focus on customising specialised automation machines that are used in automating manufacturing processes. Design, manufacturing and modification of specialised automation machines, as well as provision of corresponding maintenance and technical support services, together with provision of data management system (DMS), among others, are the group's core business activities. Its products are mainly sold to brand owners and contract manufacturers of home appliances, industrial products, automotive parts and components, which have manufacturing facilities located in Malaysia, Singapore and the Philippines.
Apart from improving manufacturing efficiency with standard modules, iStone intends to enhance its manufacturing as well as design and development (D&D) capabilities, besides developing new products and new features for its existing machines post-IPO. We derive a fair value of RM0.20 based on a c.17x PE multiple to its FY2020F EPS of 1.2 sen. The IPO is expected to raise approximately RM39.1m from the issuance of 244.3m new shares. Besides utilising 13.3% and 17.4% of the proceeds for capital expenditure and construction of new D&D centre respectively, 10.7% and 15.1% of the proceeds are allocated for process and product development and working capital requirement respectively, that are earmarked for long term future growth.
Growth drivers. iStone’s growth will be focused on i) development of new products and new features for its existing machines, ii) enhancement of its manufacturing as well as D&D capabilities, and iii) improvement of manufacturing efficiency with standard modules.
Competitive strengths. iStone’s competitive strengths include: i) experienced directors and key management team with strong technical expertise, ii) ability in customising specialised automation machines, iii) established long business relationships with its customers and suppliers, and iv) adherence to stringent international quality standards.
Catalysts. Key drivers may include: i) rising demand for automation in the manufacturing industry, ii) evolving technological advancements of end-user products, and iii) government initiatives in driving the manufacturing industry and embracing Industry 4.0 (smart manufacturing).
Key risks. Key downside risks, among others, include i) competition from other industry players and change in technology advancement, ii) dependency on major customers and absence of long-term contract, iii) exposure to fluctuations in foreign currency exchange rates, iv) renewal or maintenance of the pioneer status granted, and v) potential machines defects and product liabilities.
Source: PublicInvest Research - 8 Jul 2019