Through its subsidiaries, Wentel Engineering Holdings Bhd (WENTEL) is principally involved in the fabrication of semi-finished metal products, fabrication of metal parts and assembly of finished products. WENTEL is supported by its inhouse fabrication facilities including computer numerical control (CNC) machine and other manufacturing equipment as well as surface treatment and coating facilities. Its customers are manufacturers of security screening equipment, semiconductor manufacturing equipment, CNC machines, medical diagnostic equipment, passenger coaches and industrial 3D printers. For the FY20 to 9MFY23 financial periods, WENTEL's main markets and operations are located in Malaysia and Singapore.

Increasing production capacity and storage space, WENTEL intends to construct a new manufacturing plant. Exploring business opportunities with its existing and potential customers in the medical diagnostic equipment and semiconductor equipment manufacturing sectors, WENTEL intends to purchase machinery and equipment with improved fabrication parameters and/ or added functionality. We derive a fair value of RM0.32 based on a 23x PE multiple to its FY24F EPS of 1.4sen. The IPO is expected to raise approximately RM71.0m from the issuance of 273.2m new shares. 56.3% and 35.2% of the proceeds are allocated for construction of new manufacturing plant as well as purchase of new machinery and equipment, respectively.

• Growth drivers. WENTEL’s growth will be driven by: i) expansion of production facilities for expansion of production capacity and storage space, and ii) purchase of machinery and equipment with enhanced fabrication parameters and/ or added functionality for enhanced service offerings.

• Competitive strengths. WENTEL’s competitive strengths include: i) established track record, ii) physical presence in Singapore, iii) well-equipped production facilities, iv) in-house technical expertise, v) emphasis on product quality, and vi) experienced key senior management team.

• Catalysts. Key drivers may include: i) wide applications of fabricated metal products, and ii) increasing demand for security scanning equipment.

• Key risks. Key downside risks, among others, include: i) competitive industry, ii) dependency on certain major customers, iii) fluctuations in the market prices of metal input materials, iv) non-compliance with regulatory requirements, v) uncertainties in the security screening equipment manufacturing industry, and vi) foreign currency exchange rate fluctuations.

Source: PublicInvest Research - 22 Jan 2024