• Established more than 20 years, Feytech is the third largest manufacturer of car seats and covers in Malaysia with 25.9% market share in FY23.

• We opine that the incorporation of automotive seats manufacturing segments will be the game changer for Feytech going forward. Hence, we project the revenue to grow by 12.7-21.4% to RM256.3-326.5m and the core net profit to increase by 10.6-12.8% to RM51.9-64.5m for FY24-26f, respectively supported by its expansion plans to meet customer demand for automotive covers and seats after securing Peugeot and Client 2.

• We ascribe a fair value of RM1.10 (upside of 37.5%) for Feytech by pegging a P/E of 17.0x to the mid-FY25f EPS of 6.47 sen. We believe the P/E of 17.0x is justified as it is in line with its peers’ average P/E within the same industry of 16.0x and market-weighted average P/E of 18.2x.

Investment Highlights

Expansion plan to cater growing orders for automotive seats. As of LPD, Feytech Holdings Bhd (Feytech) Kulim Plant 1 floor area utilization rate is at 99.8%. Within the next 24 months, Feytech aims to expand its manufacturing space in Kulim to accommodate additional offline processes and workstations. This expansion will also provide more storage for finished goods and incoming materials, enabling Feytech to optimize its automotive seat manufacturing operations. Thus, the newly acquired piece of land, in Kulim Plant 2, with an approximate land area of 8.1 acres, will be able to manufacture more automotive seats to meet its growing orders that will significantly boost the top and bottom lines.

New facilities to improve utilization and client’s relations. Besides, a portion of the IPO proceeds is to fund the construction of a new corporate office with a manufacturing plant and a warehouse in the Klang Valley area and to purchase new machinery, targeting to be operational by FY26, adding ~85k sqft operational area, which will better serve Feytech’s customers in the central region of Malaysia. This may provide significant growth to Feytech’s earnings by FY26.

Game changer with the addition of automotive seat segment. Feytech has a strong track record being in the industry for 21 years. During 2021-2023, Feytech grew its market share from 23.1% to 25.9%, making it the third-largest cover manufacturer in Malaysia. A unique advantage Feytech has over its competitors in Malaysia is that Feytech can produce both the automotive covers and seats, providing convenience to automotive vehicle OEMs to appoint them for producing both seats and covers; this makes Feytech a more competitive player vis-à-vis its peers in automotive covers and seats. Furthermore, Feytech Tampoi Plant is equipped with automated cutting machinery and automated nesting software, which able to reduce cost through (i) minimising wastages and (ii) increasing overall operational efficiency, which will translate to better profit margins.

Source: Mplus Research - 8 May 2024