KHPT Holdings Bhd (KHB) is principally involved in the manufacturing and sale of automotive parts and components, including body parts, seat structures and other parts (i.e. engine parts and absorber parts). With comprehensive expertise in manufacturing automotive parts, covering dies solution services and process engineering, KHB produces customised parts and components based on customers' specifications for use in new vehicle assembly (primarily) or as spare parts for service, repair and maintenance of used vehicles, locally. As at 20 Aug 2024, KHB's automotive parts and components are used in internal combustion engine vehicles by local manufacturers (i.e. Proton and Perodua). Its products, such as body parts, seat structures, and absorber parts, are suitable for both internal combustion and electric vehicles. The Group has been a supplier to Proton for 29 years and to Perodua for 24 years, and expects continued growth alongside these manufacturers as they release new and upgraded models.KHB plans to install a new automated body parts production line, boosting capacity by 83.3% to 5.76m pieces annually, improving efficiency, and reducing labour costs. This involves renovating the Telok Panglima Garang (TPG) Factory in Selangor to reinforce the flooring for new machinery and adding a 15-ton overhead crane for better dies transfer. The setup, expected within 24 months of listing, aims to meet growing demand without disrupting operations. We derive a fair value of RM0.24 based on a 12x PE multiple to its FY25F EPS of 2.0sen. The IPO is expected to raise approximately RM21.7m from the issuance of 108.6m new shares. Besides utilising 75.3% of the proceeds as capital expenditure, 3.2% of the proceeds is allocated for working capital.

• Growth drivers. KHB’s growth will be driven by: i) setup of a new automatedbody parts production line, ii) renovation of its TPG Factory, and iii) purchaseof additional overhead crane.

• Competitive strengths. KHB’s competitive strengths include: i) experiencedand hands-on key senior management team, ii) manufacturer of parts andcomponents for Malaysia's top-selling local automotive brands, iii) inpossession of dies solution and process engineering expertise, iv) longstanding customer relationships reflecting product quality, and v) establishedtrack record.

• Catalysts. Key drivers may include: i) launch of new vehicle models as wellas localisation of parts and components, ii) economic recovery and risingdisposable income, and iii) government initiatives to boost the automotiveindustry.

• Key risks. Key downside risks, among others, include: i) dependency onMalaysia's automotive market performance, ii) competition, iii) dependencyon its major customers, and iv) dependency on the availability of manuallabour.

Source: PublicInvest Research - 25 Sept 2024