(From left) Feytech Holdings Bhd independent non-executive director of Leou Thiam Lai, AmInvestment Bank Bhd CEO Tracy Chen Wee Keng, Feytech executive director Tan Sun Sun, CEO Connie Go, independent non-executive chairman Datuk Mazlan bin Mohamad, ED Go Yoong Chang, TA Enterprise Bhd MD/CEO Datin Alicia Tiah, Feytech independent non-EDs Lee Wan Ning and Datuk Tan Yee Boon at the prospectus launch on Thursday.

KUALA LUMPUR (May 2): Feytech Holdings Bhd's initial public offer (IPO) on the Main Market of Bursa Malaysia is offering 252.94 million shares, including an offer for sale of 109.62 million, at 80 sen a piece.

The IPO will raise some RM201.6 million, of which 43% or RM87.69 milion will go to two existing shareholders Tan Sun Sun and Go Yoong Cheng, both of whom are executive directors.

Feytech is issuing 143.32 million new shares to raise some RM114.65 million, mainly earmarked for the acquisition of land and construction of its plant.

Scheduled to be listed on May 21, the automotive cover and seat manufacturer is expected to have a market capitalisation of RM674.56 million with an enlarged share capital of 843.2 million.

This values Feytech at approximately 15.3 times its financial year ended Dec 31, 2023 (FY2023) net profit of RM43.9 million and 14.4 times its adjusted net profit (excluding one-off listing expenses) of RM46.9 million.

The public issue portion of the IPO opened for public application on Thursday and will be closed on May 8.

At its prospectus launch on Thursday, Feytech shared that the about 10.1% of the gross proceeds will be allocated to part-finance the acquisition of land in the Klang Valley and 18.4% for the construction of a new corporate office with manufacturing plant and warehouse on the land with an approximately build-up area of 85,000 sq ft.

The group said it intends to relocate all its existing operations in Petaling Jaya to this new corporate office with manufacturing plant and warehouse upon completion of the construction of the same.

In addition, 16.4% of the proceeds from the IPO will be used to construct a new manufacturing plant, warehouse, annex office building and staff hostel to be built on a part of a vacant industrial land in Pekan Sungai Karangan, located in Kulim, Kedah with a total estimated built-up area of 84,000 sq ft.

Another 2.6% of the IPO proceeds will be utilised to purchase new machineries which include 75 sewing machines, an automated leather-cutting machine and a patterning machine as well as 45.5% to purchase materials and supplies and general working capital.

Established in 2002, Feytech mainly manufactures automotive covers for the original equipment manufacturer (OEM) market segment of which its customers comprise Mazda Malaysia and Kia Malaysia as well as Tier 1 automotive seat and interior part manufacturers which serve automotive vehicle OEMs for brands such as local OEM, Mazda and Hyundai.

The group also manufactures automotive covers for the pre-delivery inspection and replacement equipment manufacturer market segments which comprises automotive distributors, car owners, used car dealers, importers, automotive dealers, car accessory retailers and automotive cover installers.

Company to pass cost to customers amid higher raw material costs

At a press conference in conjunction with the company’s prospectus launch, Feytech executive director and chief executive officer Connie Go told reporters that any sudden increase in the cost of raw materials, including synthetic leather, automotive seat covers, padding, buckles and electrical parts, will impact the group’s profit margins.

The group’s net profit margin decreased to 20.8% in FY2023, from 21.7% in FY2022 and 22.4% in FY2021.

However, Go said she is confident about the group’s business prospects despite the risk of declining purchase orders from OEMs, which account for 93% of the market segment.

Analysts covering the industry had pointed to the risk of higher operating costs, lower sales and the emergence of Chinese OEMs offering attractive prices,all of which could impact the automotive sector.

“Raw materials make up over 80% of the company’s cost of sales. Hence any material spike or sudden increase in such costs such as in the price of leather may affect the company’s profit margins,” Go said at the press conference.

“In such circumstances, we may renegotiate on passing on such costs to its customers. Notwithstanding such sudden increases in costs, foreseeable incremental costs are priced in at the point of entering long term contracts with customers,” she added.

Targeting dividend payout of 40% of annual earnings

According to Feytech’s prospectus, the board plans to distribute a dividend of at least 40% of its net profits for each financial year, according to the group’s prospectus.

The group declared RM11.9 million, RM9.8 million, RM15 million and RM12.7 million dividends for FY2020, FY2021 and FY2022 and FY2023, representing dividend payout ratio of 65.7%, 51.4%, 54.3% and 49.5% respectively.

The group’s net profit climbed 59.01% to RM43.9 million in FY2023 from RM27.6 million a year earlier as revenue surged 66.5% to RM211.2 million from RM126.9 million previously driven by higher sales in automotive seats, seat covers and interior part covers.

TA Securities is the principal adviser, managing underwriter, joint underwriter and joint placement agent for Feytech’s IPO exercise.

AmInvestment Bank is the joint underwriter and joint placement agent for the exercise.