Tashin Holdings Bhd (TASHIN) is principally involved in the slitting and shearing of steel into coils and sheets, the manufacturing of steel products comprising steel pipes, flat bars, square bars, expanded metals, checkered plates and C Purlins, and the trading of steel products including steel plates, steel pipes, round bars, angle bars and wire mesh. Besides selling to steel stockists who subsequently re sell to manufacturers, TASHIN's steel processing and manufacturing operations allow the group to offer a range of steel products to various industries such as automotive, manufacturing, engineering and construction. Approximately 99.0% of TASHIN's revenue is derived locally with less than 1.0% of its revenue from foreign sales during the FY2015 to FY2018 period.

Apart from the expansion of its operations by manufacturing wire mesh with different sizes and diameters, TASHIN intends to increase production capacity of its existing steel processing line, besides increasing efficiency of steel processing and steel manufacturing activities post-IPO. We derive a fair value of RM0.44 based on a 10x PE multiple to its FY2020F EPS of 4.4 sen. We think the current listing price is relatively overvalued. Nonetheless, the IPO is expected to raise approximately RM34.4m from the issuance of 59.3m new shares. Besides utilising 20.9% and 30.1% of the proceeds for land acquisition and construction of a new factory, 22.4% of the proceeds are allocated for purchase of machinery and equipment for manufacture of wire mesh, processing of steel coils as well as automation of packing process of steel pipes and slit coils.

• Growth drivers. TASHIN’s growth will be focused on i) expansion of steel manufacturing activities, ii) increase of production volume, and iii) increase of efficiency of steel processing and steel manufacturing activities.

• Competitive strengths. TASHIN’s competitive strengths include: i) wide range of steel products that support various industries, ii) long-term relationships with customers and suppliers, iii) emphasis on product quality, and iv) experienced management team.

• Catalysts. Key drivers may include: i) continuous growth of manufacturing sector, ii) steady demand from automotive industry, and iii) revival of infrastructure projects and demand for residential projects in construction sector.

• Key risks. Key downside risks, among others, include i) competition within the steel processing and steel manufacturing industry, ii) fluctuations in price of raw materials, iii) fluctuations in foreign exchange, iv) changes in import duty regulations in the steel industry, v) dependency on major supplier, vi) reliance on foreign workers in operations, and vii) may be subject to impairment loss or bad debts.

Source: PublicInvest Research - 19 Jul 2019