Tech bond Group Bhd ("TGB") is making its debut on the Main Market today. TGB has 22 years of track record as a manufacturer of industrial adhesives and sealants with strong presence in ASEAN. BUY with a target price of RM0.95 based on 15x PER FY19 of Bursa Malaysia Industrial Production Index. 

To date, TGB owns 8 brand names under its products portfolio supported by strong in-house R&D capabilities, including 368 types of internally developed products. TGB's capabilities in products customisation gives them an edge over its competitors where its top customers have been with them ranging from 7 to 14 years. 

Bulk of the sales (>50%) are contributed from Vietnam, driven by Vietnam's rising presence as a wood processing hub. Hence, circa 73% of the IPO proceeds will be focused on the second factory complex in Vietnam with completion by Mar 2020. Besides adding 2 adhesives production lines, TGB plans to go for vertical integration by setting up polymerisation facility (main base material) in Vietnam. This would further enhance cost efficiency apart being a new income source for TGB. As Vietnam is a net importer of industrial adhesives, we believe TGB's expansion in Vietnam is strategic not only to capture local market but also other potential Indochina markets. 

Meanwhile, 14.9% of the proceeds is allocated for Malaysia operations to add 4 production lines as well as the development of new adhesives types. Upon completion of the facilities in both countries, annual capacity is expected to boost at least 5-fold to 3,494 tonnes for sealants and 59% to 17,878 tonnes for adhesives. 

Balance sheet remains sound with zero borrowing and net cash of RM36.7m post listing. TGB has a commendable net margin of around 15% while net profits have been growing steadily at 12.3% CAGR for the past 4 years. As such, EPS is expected to grow by 8% and 26% respectively in FY19 and FY20.

Source: Rakuten Research - 5 Dec 2018