• Winstar Capital Berhad is an investment holding company primarily engaged in (i) aluminium extrusion and fabrication, (ii) trading and distribution of building materials, and (iii) solar PV system installation services, serving customers like contractors, property developers, manufacturers and wholesalers.

• We project a 3-year earnings CAGR of 20.1%, with core PATMI expected to reach RM9.2m-RM13.9m over the next three years. This growth is largely underpinned by (i) its more than double capacity expansion in Ijok, (ii) strengthening presence in the solar industry and also (iii) growth in Malaysia’s construction and property sectors in general.

• We assign a fair value of RM0.56 per share for Winstar, indicating a 60.0% upside from the IPO price of RM0.35. This valuation is based on a PE multiple of 15x pegged to FY25f EPS of 3.75 sen.

Investment highlights

Aluminium extrusion capacity to more than double. The group plans to invest in new aluminium extrusion press machines and equipment to expand its overall capacity and increase the variety of extruded aluminium profiles offered to customers. This investment will enhance the ability to extrude larger diameter profiles by utilizing machines with higher UST. As a result, the group's total aluminium extrusion capacity is expected to increase by 8,580 tonnes, from c.6,705 tonnes p.a. to 15,285 tonnes p.a., positioning the group for greater customer demand and operational efficiency.

Expanding further in the solar PV industry. The group plans to strengthen its presence in the solar PV market by fabricating aluminium solar PV mounting structures and related accessories, having secured multiple purchase orders and contracts from Fabulous Sunview. Since early 2024, the group has generated RM9.52m in revenue from these products. Moving forward, the group will expand its fabrication activities to include additional solar PV-related accessories like brackets and clamps, with secured orders totalling RM11.11m as of the LPD. This strategy positions the group to capitalize on the growing demand for solar solutions in the renewable energy sector.

Aluminium extrusion market is expected to grow. According to the IMR report, Malaysia’s aluminium extrusion market is projected to achieve a 5-year CAGR of 7.8%, growing from a market size of RM3.22bn in 2023 to RM4.69bn in 2028. This growth will be driven by increasing demand from the transportation, renewable energy, and construction industries, supported by aluminium's versatility and its alignment with the global shift towards sustainable practices and lower carbon emissions.

Construction and property sectors to drive demand for Winstar’s products. As the group specializes in aluminium extrusion for windows, doors, and ladders, along with trading and distributing building materials, it is well-positioned to benefit from the expanding construction market. According to NAPIC, Malaysia’s property market improved in 1H2024, with total transaction volume and value growing by 8.0% YoY and 23.8% YoY respectively. Additionally, total loan applications and approvals for residential purchases increased slightly by 1.6% and 0.3% respectively. Government initiatives in Budget 2025, including tax reliefs for homebuyers, the Housing Credit Guarantee Scheme (HCGS) and affordable housing initiatives are expected to further drive homeownership growth, leading to higher demand for Winstar’s products.

Company background

Founded in 2002, Winstar Capital Berhad is primarily an investment holding company with subsidiaries engaged in (i) aluminium extrusion and fabrication, (ii) trading and distribution of building materials and (iii) solar PV system installation services. The group has expanded its operations through strategic acquisitions, including Teck Heng Marketing Sdn Bhd and MIM Industry, enhancing its product offerings to include aluminium ladders and solar-related materials. Operating from its Ijok Manufacturing Facility, which features multiple production lines, the group serves a diverse customer base in the construction and renewable energy sectors.

Business overview

Aluminium extrusion (57.2% of FY23 revenue). The group specializes in aluminium extrusion, producing primarily for the construction and property development sectors. The process begins with close collaboration with customers to design the extrusion die, which shapes the aluminium billets during production. The group operates 4 extrusion press machines with varying capacities to cater to diverse customer needs, offering around 2,000 stock keeping units (SKUs) of extruded profiles as of LPD. After extrusion, the profiles may undergo cutting, anodising, or powder coating to meet specific quality and aesthetic requirements. Additionally, the group engages in limited fabrication activities, producing aluminium ladders marketed under the "Asteri" brand and solar PV mounting structures for its installation services.

Trading and distribution of building materials (42.1% of FY23 revenue). The group trades and distributes a variety of building materials, including (i) extruded aluminium profiles, (ii) stainless steel products, (iii) aluminium items, (iv) silicone sealants, and (v) ironmongery products, primarily for the construction, property development, and manufacturing sectors. They purchase these materials in bulk from suppliers and store them at their facilities. When demand exceeds production capacity, they also source extruded aluminium profiles from other suppliers to ensure consistent quality. As of the LPD, the group offers around 2,900 different types of products in this segment.

Solar PV system installation services (0.7% of FY23 revenue). The group has expanded into solar PV system installation services through its partnership with Sunview Group Berhad. This collaboration allows the group to fabricate aluminium mounting structures for solar panels and undertake projects awarded by Fabulous Sunview. The group plans to bid for more projects in the solar industry, and in this process, Winstar will act as a Project Manager, who will manage and supervise the installation work to ensure smooth and timely implementation of the project. Essential components like solar systems and inverters are typically supplied by main contractors or facility owners, while the group provides the aluminium mounting structures through its extrusion services.

Financials

Revenue highlights. The group reported a 39.8% YoY growth in revenue, increasing from RM109.9m in FY22 to RM153.7m in FY23. This increase was primarily driven by both the aluminium extrusion segment and trading and distribution of building materials segment, which saw an increase of 39.7% and 37.6% respectively. The increases were both contributed by increase in orders from customers in the construction industry. Meanwhile, the group also begun to introduce solar PV system installation services since July 2023 and generated revenue of RM1.11m. Nevertheless, the solar PV installation service segment is made up of less than 1% for the group’s total revenue source. The group showed the highest EBITDA and PAT margin in FY23, indicating improved operational performance for the group over the years.

Earnings forecasts. Moving forward, we project a 3-year earnings CAGR of 20.1%, with core PAT expected to reach RM9.2m, RM10.9m, and RM13.9m over the next three years, largely supported by (i) its more than double capacity expansion in Ijok, (ii) strengthening presence in the solar industry and also (iii) growth in Malaysia’s construction and property sectors in general.

Valuations

We assign a fair value of RM0.56 per share for Winstar Capital Berhad, representing a 60.0% upside from the IPO price of RM0.35. This valuation is based on a P/E ratio of 15x, pegged to FY25f EPS of 3.75 sen. We believed that the ascribed P/E is fair as the average historical P/E and forward P/E among its peers stood at 14.6-28.4x.

Investment risks

Dependent on major supplier. The group's operations are heavily reliant on Formosa for aluminium billets, which account for over 40% of its total purchases and are crucial for its extrusion activities. Any disruptions in supply or fluctuations in pricing could jeopardize production schedules and profit margins, leading to potential negative impacts on the group's financial performance.

Risk of electricity supply disruptions. The group's operations at the Ijok Manufacturing Facility are heavily dependent on a consistent supply of electricity, which powers all machinery and equipment. Although electricity costs represent less than 2% of total sales, any disruption could significantly hinder operations. Despite the installation of solar PV panels, their output is insufficient to meet operational needs.

Risk of unexpected interruptions from machinery breakdowns. The group's aluminium extrusion activities rely heavily on the optimal performance of its extrusion press machines. Despite regular maintenance, there is no guarantee against unexpected interruptions due to breakdowns or suboptimal machinery performance. Any significant or prolonged disruption could delay the production of extruded aluminium profiles, impacting delivery schedules and potentially leading to customer dissatisfaction.

Dependent on key senior management. The group's operations are significantly influenced by its experienced Key Senior Management, whose extensive knowledge of the aluminium extrusion industry is vital for daily operations, governance, and strategic growth initiatives. The continued success of the group hinges on their capabilities and ongoing contributions.

Labour-intensive operations. The group’s aluminium extrusion, fabrication, assembly, and warehousing activities are highly labour-intensive, with over 80% of the workforce engaged in these physically demanding roles. Currently, a significant portion of the workforce consists of foreign workers, who may present additional challenges such as obtaining work permits and complying with changing immigration regulations.

Source: Mplus Research - 2 Dec 2024