Financial Highlights and Valuation

Revenue boost helped by construction and property upswing. Winstar Capital Berhad has recorded an impressive CAGR of 30.9%, with revenue rising from RM89.8m in FY21 to RM153.7m in FY23 and projected to reach RM339.4m by FY26, reflecting a CAGR of 29.2% over the next three years. This strong growth is closely aligned with the robust post-pandemic recovery in Malaysia's construction and property development industries, where annual property transaction values have more than doubled-from RM46.9bn in 1H2020 to RM105.7bn in 1H2024 (Figure 4). A thriving property market translates to increased new launches and construction projects, directly benefiting Winstar as a supplier in the midstream and downstream segments of the aluminium industry value chain. The Group's expertise in converting aluminium billets into high-quality extruded aluminium profiles, supported by an extensive portfolio of approximately 2,000 SKUs, positions Winstar to meet the growing demand for essential building materials.

Scaling up production with new facilities. Winstar is set to enhance its production capacity by doubling the number of aluminium extrusion lines from four to eight. This expansion, funded by RM9.6m from its IPO (48.3% of the public issue), will raise the total aluminium extrusion capacity from 6,705 tonnes in FY23 to 15,285 tonnes by FY26 upon full installation. The new extrusion lines will be housed in its Lot 903 facility, an 80,000 sq. ft. space designed to support increased production and storage needs, including building materials purchased in bulk as part of the Group's secondary revenue stream. Installation of the new capacity will be in phases - two lines by 2Q25 and another two by 2Q26. Due to the significant increase in capacity, we estimate that utilisation rates will decrease to 63%-70% in FY25- 26, but total production is expected to be higher at 7,000 tonnes and 9,700 tonnes respectively.

A growing and diversified customer base. Winstar's customer base is notably diversified, which helps reduce concentration risk. In July 2024, the top five customers are Kerjaya Prospek, Fabulous Sunview, Sunview Windstar, SA Aluminium and Glass, Lynox Industries, and a long-standing client of 20 years, Sunway Winstar-each contributed less than 10% to the Group's total revenue. These five customers together accounted for only 20.9% of the Group's total revenue of RM108m for the 7-month ending FY2024 period, while the remaining 79.1% came from a diverse network of 3,145 customers.

This diverse customer base reflects Winstar's ongoing efforts to broaden its market reach, evidenced by a significant growth of 32.6% since FY21 when the Group served about 2,372 customers. Additionally, Winstar's aluminium products have been utilised in numerous high-profile construction projects, including The Conlay (Kuala Lumpur), Bloomsvale Residence, The Vue @ Monterez, and Papyrus @ North Kiara, further highlighting its strong presence and reliability within the industry.

Expansion into solar PV industry. The group expanded into the solar PV industry last year through Vafe System, a subsidiary of Sunview Group Berhad, opening opportunities to fabricate aluminium solar PV mounting structures. This move is timely as the solar industry outlook remains strong, backed by key energy initiatives like the Green Technology Financial System (GTFS) and increased NETR funding of over RM300m post-Budget 2025. Projects such as the LSS5 program, with its 2,000 MW capacity, will drive demand for solar components. Winstar can benefit by supplying essential mounting structures, securing contracts, and strengthening its position in the growing renewable energy market.

Solid margins supported by expansion. Winstar is expected to maintain a stable PAT margin of 5% to 6%, supported by its business model of manufacturing, trading, and distributing aluminium products. The company's strategic expansion in production capacity-from 6,705 tonnes in FY23 to 15,285 tonnes by FY26 upon full installation-positions it to capitalise on the rising demand from the booming construction and property sectors. Additionally, the company also purchases in larger volumes to lower costs per unit for its trading and distribution of building materials segment.

Healthy balance sheet. Winstar has maintained a solid balance sheet, with a steady cash position and a net gearing ratio of 0.75x in FY23. Post-IPO, with its robust balance sheet and effective working capital management, Winstar plans to adopt a formal dividend policy, targeting at least a 30% payout.

RM0.52 FV based on 10x FY25 EPS. We assign Winstar Capital Berhad a target PE of 10x, which is slightly above the industry average of 7.9x. Its comparable peers primarily operate in the midstream and downstream aluminium sector. Our higher target PE reflects strong earnings growth potential for Winstar, driven in part by strategic ventures with Sunview Group Berhad for expansion into the solar panel market.

Source: Mercury Securities Research - 3 Dec 2024