Kanger International Bhd (“Kanger”), which will be listed on the ACE Market on 23 December 2013, is a supplier, manufacturer and trader of bamboo flooring and related products under the brands ‘Kanger’ and (“KAR Masterpiece”). We are projecting FY13 and FY14 core net profits to be registered at RM9.0m (+42.0% YoY) and RM13.1m (+44.8% YoY), respectively, with increases in both output and average selling price (“ASP”) given its new strand wood products. Based on a FY14E PER of 9.0x, which is a 25%-discount to the Forward PER of FBM Small Cap (“FBMSC”) Index of 12x (for its relatively smaller market cap and business operations in China), and our FY14 core EPS estimate of 30.5sen, we assign a Fair Value (“FV”) of RM0.275. However, we believe the share price performance could be stronger than expected due to overwhelming response of its public issue (with an oversubscription of 60.6x). Should the stock trade up to FBMSC’s Forward PER of 12.0x, it should be valued at RM0.365.

Integrated bamboo flooring industry player. Since its inception in 2004, Kanger began as a trader and supplier of bamboo flooring and related products. It ventured upstream into the manufacturing chain and is currently manufacturing strand woven bamboo flooring products. It is also actively involved in R&D activities to improve the quality of its products.

Wide distribution network. Kanger’s distribution network is supported by 31 ‘Kanger’ stores and one ‘KAR Masterpiece’ located in the Guandong province. Kanger plans to establish its distribution network and strengthen its foothold in the Guangdong province before expanding into other provinces. Aggressive marketing strategies undertaken by Kanger have resulted in it securing overseas customers, which accounted for 20% of total revenue in 1H2013.

Experienced management team. Kanger is led by Mr. Leng Xingmin, who has ten years experience in the bamboo flooring industry. He is supported by a team of dedicated and skilled personnel who posses the necessary experience and expertise to operate and grow the company in a competitive business environment. The management team has been successful in implementing its strategic plans over the past few years, as reflected in Kanger’s past and current financial performance.

Committed in R&D to remain competitive. Continuous effort by Kanger to invest in R&D has improved the quality of their products and accelerated the pace of new products development and widen their products range to cater to different consumer preferences and markets. R&D collaboration with FRIM board had enabled Kanger to tap into the expertise of FRIM’s staff and facilities. Through its R&D efforts, Kanger has launched 12 different series of bamboo flooring.

Expecting a strong revenue in FY13 and FY14. We expect the group to achieve turnovers of RM71.6m (+85.6% YoY) and RM92.8m (+29.6% YoY) in FY13 and FY14, respectively. Meanwhile, its FY13 and FY14 core net profits are projected at RM9.0m (+42.0% YoY) and RM13.0m (+44.8% YoY), respectively.

Downside risks include (i) unfavourable business and operational environments, (ii) its dependency on a few major customers, such as B&Q China, and (iii) fluctuation in foreign exchange rates.

Source: Kenanga