INVESTMENT HIGHLIGHTS

• Orderbook of RM220m

• Facility expansion to cater for more value-added products

• Tapping into regional markets for growth

• Not rated with FV of RM1.16 based on FY18F PER of 11x Business Overview:

Signature International Bhd (Signature) designs, produces, markets and distributes kitchen systems under its flagship brand Signature Kitchen and mass market brand Kubiq. The company was established in year 1994 and listed in year 2008.

Investment theses:

1. Orderbook of RM220m. Signature derives 70% of its sales from projects and the remaining is made up of retail sales. Media report mentioned that the Company has RM220m unbilled orderbook as of end-February and this is higher than FY16’s RM150m. Moreover, it takes part in tendering processes actively and is bidding for close to RM500m worth of jobs. It counts the country’s first-tier developers as its clients.

2. Facility expansion to cater for more value-added processes. Signature is increasing its gross floor space in Kota Damansara from 98,043 sq ft to 164,043 sq ft. Out of the new floor space, 10,000 sq ft is office space and 56,000 sq ft is for its warehouse and production floor. Separately, it will increase its aluminium and glass fabrication production at its Meru site.

3. Fine-tuning marketing strategies to stay on the top. Signature is a market leader of premium kitchen systems in the local market. In FY16, it sells 99% of its products locally while the remaining is exported. It has tied up with financial institutions to provide loans to buyers and plans to expand its overseas sales through the local project dealers in those countries.

4. Strong balance sheet. The company’s gearing was at a healthy 0.04x as at end-2016. That gives room for investments and growth opportunities.

Valuation:

We ascribe a fair value of RM1.16 on Signature based on 11x PER of FY18F EPS of 10.52 sen. There is no other listed kitchen system maker like Signature in Malaysia that commands a strong branding. The 11x ascribed is a slight discount to FBM Small Cap forward PER of 12x.

Source: MIDF Research - 9 May 2017