• WENTEL plans to set up a new larger production facility, as well as purchase new machinery to increase scale of production and the sophistication of products.

• At the IPO offer price of RM0.26, WENTEL is trading at 14.6x based on FY22 core net EPS of 1.78 sen. Meanwhile, WENTEL’s forward P/E valuation for FY23-24f is estimated at 20.0x and 15.5x, respectively.

• We arrived at our fair value of RM0.335 (28.8% potential upside from its IPO price) by ascribing a target P/E of 20x to our forecasted FY24f average EPS of 1.67 sen. The assigned P/E is more than a 50% discount to the average peers’ P/E of 43.8x, as WENTEL having a smaller market capitalisation.

Investment merits

• Purchase of new machinery to improve the scale and variety of product offerings. Pursuant to the utilization of IPO proceeds, WENTEL plans to purchase several new machineries which includes CNC laser cutting and/or turret punching machines, CNC milling machines and others. The newer machines will not only allow WENTEL to increase the scale of production by increasing the amount of goods produced, but also improves the product offerings as the new machines have a higher level of precision which will allow WENTEL to cater to more specific demands from its clients.

• Setting up a new and larger production facility. WENTEL will also use the IPO proceeds to set up a larger production facility which includes a larger production area, storage area, office, hostel and others. We understand from the management, the current production facility is unable to meet the spatial demand for the new machinery. Thus, upon the commencement of operations in 2H 2025, WENTEL will be able to greatly improve its scale of production.

• The security screening market projected to grow at a CAGR of 8.2% from 2024 to 2034. In 2024, the security screening market is valued at USD11.72bn and is projected to reach USD25.70bn by 2034 on the back of demand factors such as the increasing threats from terrorism and geopolitical tensions among selected countries, the growing adherence to stricter government regulations and international security guidelines, etc. The growth will enable WENTEL to grow its sales by catering to the growing demand for security screening machines. (Source: Future Market Insights)

Source: Mplus Research - 6 Feb 2024