Armed with proceeds of RM765m following the disposal of its key asset – a 30% stake in water asset Splash on 24 April 2019, Kumpulan Perangsang Selangor (KPS) has been on an acquisition trail to replenish its revenue and earnings drivers. KPS has subsequently ventured into industrial packaging, electronic manufacturing services (EMS) and plastic injection moulding. Notably, KPS has a 20% stake in Sprint Holdings, the highway operator of the Sprint highway, and investments in companies involved in trading (Aqua-Flo’s water chemical products), licensing (and manufacturing of the King Koil brand), and infrastructure.

Riding on Demand in the Global EMS Space

Acquired for RM250m in Mar-18 (2017 PER of 10x), CPI (Penang) SB is a Penang-based Engineering Thermoplastics (ETP) and EMS player. About 85% of its 2018 sales are from its ETP business, supported by multinationals in the automotive, communication, medical and electronics sectors. CPI’s future plans are to: 1) focus on higher-margin customers and 2) venturing into new sub-industries, ie aerospace and smart metering.

Bolt-on Acquisition for High Precision Plastic Injection Moulding

Acquired for RM311m in July-19 (2019 PER of 9x), Toyoplas Manufacturing (Malaysia) SB is involved in the plastic injection moulding business with an integrated capability from mould fabrication, precision injection moulding and secondary processes to full assembly of parts or products. KPS believes that Toyoplas’ acquisition will unlock the potential from the horizontal integration and further support the expansion of the group’s existing high precision plastic injection moulding segment. Toyoplas made its maiden revenue of RM74m in 3Q19.

Largest Cement Bag Supplier in Peninsular Malaysia

KPS acquired Century Bond Bhd (CBB), an integrated packaging solutions provider, for RM208m (2016 PER of 18x) in Nov-16. About 84% of its 9M19 revenue was derived from its paper bag and carton box divisions. With an est. 60% market share in Peninsular Malaysia’s cement bag market, CBB’s paper bag division operates from three plants located in Ipoh and Senai in Malaysia, and Medan, Indonesia. Its carton box division has two plants in Nilai and Senai, with an average utilisation of 80%. Going forward, CBB plans to strengthen its position in the non-cement bags market.

Sprint Proceeds to Pare Down Debts

While there has yet to be a decision made by the government so far, KPS intends to use the proceeds from the potential disposal of Sprint Highway to pare down its gearing (0.7x as at Sept-19). Management believes the disposal could also reduce its share of losses from associates: FY18 share of losses from Sprint was RM1.4m.

Valuation in Line With Bursa Malaysia Industrial Stocks

KPS currently trades at a PER of 15x based on annualised 9M19 earnings, which is roughly in line with the sector average PER of 12x for similar small cap companies listed on Bursa Malaysia’s Industrial segment. CBB’s local peers include Master-Pack (MPG MK, not rated) and Muda Holdings (MUD MK, not rated), which are trading between 5x-23x, whereas CPI/Toyoplas’ EMS peers (Fig 1) trade at PER multiples of between 11x-17x.

Source: Affin Hwang Research - 5 Feb 2020