Smart Asia Chemical Bhd (SAC) is principally involved in the development, manufacturing, distribution and sale of decorative paints and protective coatings for household and industrial applications. In addition, the Group is also involved in the development, manufacturing, distribution and sale of related products, namely colourants, and binding and coating chemicals; sale and trading of painting tools and accessories, aerosol spray paints and other related products to complement its decorative paints and protective coatings offerings. SAC also provides original design manufacturer (ODM) services of decorative paints, protective coatings as well as binding and coating chemicals for third party brand owners. As at 5 April 2024, SAC has nine wholesalers and 937 dealers across Malaysia, along with 14 authorised distributors overseas. Additionally, the Group has installed Smart Colour POS Tinting Machines in 381 retail hardware stores/paint shops nationwide, selling a total of 64 units to wholesalers and dealers, and 62 units to authorised distributors abroad.Besides setting up more Smart Colour POS Tinting Machines to further drive sales and distribution efforts, SAC is in the midst of establishing a new manufacturing facility to expand capacity and streamline operations. Upon completion of construction, SAC plans to install an industrial tinting system and an automated paint production system in the new plant, with integration of its automated colour matching software to further automate manufacturing activities and reduce dependency on human labour. We derive a fair value of RM0.49 based on a c.14x PE multiple to its FY25F EPS of 3.5sen. The IPO is expected to raise approximately RM37.4m from the issuance of 93.5m new shares. 72.2% and 13.4% of the proceeds are allocated for establishment of new plant as well as purchase of Smart Colour POS Tinting Machine, respectively.

• Growth drivers. SAC’s growth will be driven by: i) setup of new plant withimplementation of automated industrial system, ii) setup of more Smart ColourPOS Tinting Machines, and iii) intensified sales and marketing efforts.

• Competitive strengths. SAC’s competitive strengths include: i) wide range ofproducts sold under its house brands, ii) multi-channel distribution network, iii)technical expertise in meeting market demand with provision of ODM services,and iv) experienced management team.

• Catalysts. Key drivers may include: i) growth recovery in the constructionindustry in Malaysia, ii) growth in local manufacturing sector, and iii) increasingdisposable income and affluence among Malaysian.

• Key risks. Key downside risks, among others, include: i) dependency on theconstruction and manufacturing industries, ii) competition, iii) reliance on itsreputation, iv) dependency on its wholesalers, dealers and authoriseddistributors, and v) non-compliance with the laws and regulations applicable toits business.

Source: PublicInvest Research - 13 May 2024