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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 15 Oct 2021, 9:35 AM

 

CEKD Bhd (IPO Note) - Preferred Die-cutting Solutions Partner

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CEKD Bhd (CEKD) is principally a die-cutting solutions provider. The group manufactures and produces different types of die-cutting moulds according to its customers’ requirements and needs, while providing other value-added die-cutting solutions to complement its die-cutting moulds manufacturing segment. Apart from manufacturing, CEKD is also involved in the trading of related consumables, tools and accessories. This is part of the group’s business strategy to cater to its customers’ diverse needs and to allow for further revenue growth. The group's die cutting moulds and tools are used in paper printing and packaging, electrical and electronic, automotive, plastic packaging as well as textile and leather industries. Furthermore, CEKD is not dependent on any particular customer or industry for its business, given the large customer base of 1,309 customers (as at 6 Aug 2021) and the diverse industries that they are operating in.

Moving forward, CEKD intends to consolidate Hotstar (M) S/B’s operations under one roof to centralise and better manage the wholly-owned direct subsidiary’s operations. Apart from increasing export revenue, CEKD intends to invest in new machineries together with software to increase its production capability, automate certain production processes and cater for future business growth. We derive a fair value of RM0.54 based on a 16x PE multiple to its FY22F EPS of 3.4sen. The IPO is expected to raise approximately RM24.3m from the issuance of 50.6m new shares. Besides utilising 36.2% of the proceeds for to acquire a factory for Hotstar, 17.8%, 16.5% and 6.2% of the proceeds are allocated for capital expenditure, repayment of bank borrowings and marketing activities respectively.

  • Growth drivers. CEKD’s growth will be dependent on: i) investment in new factory units, ii) investment in new machineries and upgrade of computer software, and iii) increase in export revenue.
  • Competitive strengths. CEKD’s competitive strengths include: i) reputable manufacturer specialising in custom die-cutting solutions, ii) commitment to quality assurance, iii) established working relationships with its customers, iv) after-sales services that nurture goodwill, and v) experienced management team.
  • Catalysts. Key drivers may include: i) technological advancement in both supply side and end-user markets, ii) growth in e-commerce, iii) increasing preference for environmental friendly packaging, and iv) supportive government incentives.
  • Key risks. Key downside risks, among others, include i) increase in competition, ii) general market downturn, iii) lack of long-term contracts with its customers, iv) fluctuations in foreign exchange rates, and v) potential relocation of customers to overseas.

Source: PublicInvest Research - 17 Sept 2021

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