Initial Public Offering (IPO)
IPO - MN Holdings Berhad
MQTrader Jesse
Publish date: Thu, 14 Apr 2022, 03:50 PM
Company Background
The company was incorporated in Malaysia under Act on 26 November 2020 as a public limited company under the name MN Holdings Berhad to facilitate.
The company is an investment holding company. As at the LPD, the group structure is as follows: -
Through the subsidiaries, the company is principally involved in the following business activities:
- Underground utilities engineering services and solutions; and
- Substation engineering services and solutions.
The company has more than 13 years of operating history in the power utilities construction industry in Malaysia. MNSB and MPTSB have both been registered as Grade 7 (or commonly known as G7) contractors with CIDB for the categories of Building (B), Civil Engineering (CE), and Mechanical Engineering (ME).
The company is mainly responsible for providing engineering services and solutions with the necessary machinery, labor, and expertise for infrastructure utility construction that we undertake.
They typically undertake the following forms of contract:
- EPCC or turnkey contracts where they will be responsible to complete the entire project and hand it over in a fully operational form to their customers;
- bulk contracts whereby they render services according to work orders placed by their customers during the duration of a fixed contract; or
- single contract where they are engaged to undertake a specific scope of work for a project based on agreed terms and project schedule.
The company primarily serves the power utility sector in Malaysia. Their customers are primarily main contractors for power projects, property developers, and industries that require their service and solutions to enable the supply of power to specific locations and/or premises.
Use of proceeds
- Capital Expenditure - within 24 months (34.02%)
- Repayment of bank borrowing - within 12 months (23.27%)
- General working capital - within 24 months (25.24%)
- Estimated listing expenses - within 1 month (17.47%)
Capital expenditure - within 24 months (34.02%)
The company has allocated RM 5.84 million representing 34.02% of the gross proceeds from the Public Issue to purchase various machinery and equipment to support the business expansion for the underground utilities and substation engineering service and solution segments.
All the following machinery and equipment will be purchased from local suppliers:
The management team mentioned the purchase of machinery and equipment able to enhance the overall operational efficiency level by reducing the bottleneck in the operations, allowing the company to secure more projects as well as tender, and better cost control and time management of the project schedule to facilitate timely completion of the projects.
Repayment of borrowings
The company has allocated RM 4.00 million, representing 23.27% of the gross proceeds from the public issues, to pare down part of the Group’s outstanding borrowings. The details are as set out in the table below:
This action will help the company save the interest on around RM 0.15 million per annum based on existing prevailing nominal interest rates ranging from 2.25% to 5.52% for hire purchases and 3.00% to 7.60% for term loans.
The proposed repayment of bank borrowings coupled with the increase in total equity from the issuance of new Shares under the Public Issue will provide the company with better borrowing capability to undertake larger projects in the future where larger financing is required.
General working capital
The group’s working capital requirements are expected to increase in line with the growth in our business operations. A total of RM 4.33 million, representing 25.24% of the gross proceeds from the Public Issue will be used to supplement the general working capital requirements for new and existing projects. The proposed allocations of the proceeds are set out below:
Business Model
The primary business activities relate to the provision of:
- Underground utility engineering service and solutions
- Substation engineering services and solutions
Underground utility engineering services and solutions
As at the LPD, the company primarily serves the power utility sector in Malaysia. Our customers are primarily main contractors for power projects, property developers, and industries that require our services and solutions to enable the supply of power to specific locations and/or premises. Thus, the group's positioning within the electricity supply industry is as depicted below:
Through MNSB, the company procures, supply, deliver, install, lay, construct, test, and commission as well as inspect, repair, and maintain underground utilities or product pipelines that form the overall utility system for the customer. This relates to:
- Power cables, auxiliary cables, and accessories for electricity transmission and distribution
- Telecommunication and fiber optic network for fixed and mobile telephony services
- Sewerage pipelines for transportation of sewage
- Drainage pipe for transportation of water.
They will normally use open trench excavation and trenchless methods for underground utilities.
Substation engineering services and solutions
- EPCC or turnkey contracts where the company will be responsible to complete the entire project and hand it over in a fully operational form to their customer.
- contracts range from 6 months up to 24 months
- Bulk contracts whereby the company renders services according to work orders placed by the customer during the duration of a fixed contract.
- contracts generally valid for 12 months
- Single contract where the company is engaged to undertake a specific scope of work for a project based on agreed terms and project schedule.
Financial highlights
- Revenue reached a new high in FYE 2021 with RM 115.2 million, a CAGR of around 22% from FYE 2018 to FYE 2021. The new contracts are 94 new contracts (FYE 2018), 129 new contracts (FYE 2019), 116 new contacts (FYE2019), and 131 new contracts (2021) This also shows that the company is expanding its market share in this sector.
- The gross profit margin is decreasing from FYE 2018 to FYE 2021. The main reason to cause the decrease in gross profit margin is the increase in the purchase of raw materials and an increase in the overhead cost. (Generally, a GP margin of 20% is considered high/ good).
- PAT margin decrease from 14.23% (FYE 2018) to 7.06% (FYE 2021).
- The gearing ratio is around 0.21 to 0.39 which is under a healthy range. (Good gearing ratio should be between 0.25 – 0.5)
Major customers and suppliers
Major customers
According to the details, the top 5 customers are over 60% of all the customers, and the top 1 customer Rentak Segar nearly with 40% of all the revenue this shows that the company highly relies on the top 1 customer, therefore the company shows weak bargaining power with Rentak Segar. The company will face high custom concentration risk which will directly affect their revenue and order book.
Major suppliers
Through the major supplier's table, we found that the main raw material of the company is pipes (25.48% of all purchases)which they had purchased this material from Bina Plastic Industries Sdn Bhd. Both companies had cooperated for over 14 years, this shows the strong relationship between Mh Holdings Berhad with Bina Plastic Industries Sdn Bhd. The top 5 customers are around 40% of all suppliers, therefore we believe the company is able to avoid high concentration supplier risk due
Industry overview
According to the research from providence strategic partners, there are few key growths driving the power utility infrastructure market in Malaysia.
- Long term economic growth supports investments in utility infrastructure
- Population growth and urbanization promote investments in utility infrastructure
- Growing demand for electricity stimulates investments in new and replacement utility infrastructure
- Government initiatives to strengthen utility infrastructure in Malaysia
Long term economic growth supports investment in utility infrastructure
The Malaysian economy expanded by 4.3% in 2019 before contracting by 5.6% in 2020 against the backdrop of the global COVID-19 pandemic.3 Malaysia’s economy registered a positive growth of 3.6% in the fourth quarter (“Q4”) of 2021 (3Q 2021: -4.5%). Growth was supported mainly by an improvement in domestic demand as economic activity normalized following the easing of containment measures under the National Recovery Plan (NRP).
In Q4 2021, all economic sectors recorded an improvement. The services sector expanded by 3.2% in Q4 2021 (3Q 2021: -4.9%), and the manufacturing sector recorded a significant improvement of 9.1% in Q4 2021 (3Q 2021:-0.8%). Malaysia’s economy is expected to remain on its recovery path in 2022. Economic growth is expected to be supported by the continued expansion in global demand and higher private expenditure given improving labor market conditions and ongoing policy support.
Economic growth is a key driver for investments in utilities, as robust utility infrastructure supports economic activities and attracts foreign and domestic investments. While Malaysia’s economy may have experienced a contraction in 2020, PROVIDENCE anticipates that the private and public sectors will still incur capital investments for underground utility engineering services and solutions; as well as substation engineering services and solutions, albeit at a moderated level, as infrastructure and utilities are important drivers for the growth of the economy of any region. Electricity, roads, water systems, public utilities, airports, railways, and telecommunications are essential services that drive economic activity by channeling trade and mobility.
Population growth and urbanization promote investments in utility infrastructure
According to the World Population Prospects: The 2017 Revision, the nation’s population is
expected to reach almost 33 million people in 2020, with numbers projected to rise to more than 40 million in 2050. The same trend has been projected for the nation’s urbanization rate, which stands at 75.0%. DESA, in its World Urbanisation Prospect: The 2014 Revision, projected that Malaysia was expected to register an urbanization rate of 80.0% in 2020, and between 85.0% to 90.0% by 2050.
The increase in urbanization will bring changes and challenges unless it can be supported by robust utility infrastructure for electricity, piped gas, water, sewerage as well as communications services. This will ensure that Kuala Lumpur and other cities will continue to experience growth and remain competitive. Thus, investment in utility infrastructure to support population growth and urbanization will benefit industry players that offer underground utility engineering services and solutions; as well as substation engineering services and solutions.
Growing demand for electricity stimulates investments in new and replacement utility infrastructure
Malaysia’s consumption of electricity increased from 132,199.0 gigawatt-hours (“GWh”) in 2015 to 149,754.0 GWh in 2019, before contracting slightly to 142,748.0 GWh in 2020 due to the MCO that disrupted business activities for commercial and industrial businesses. Regionally, Peninsular Malaysia remains the primary consumer of electricity in Malaysia, consuming close to 80.0% of the electricity sold. For the period January 2021 to November 2021, the local consumption of electricity was approximately 134,000.0 GWh. Peninsular Malaysia and Sabah’s transmission systems were 24,607 kilometers (“km”) and 2,941 km in length respectively comprising 500.0 kilovolts (“kV”) lines, 275.0 kV lines, 132.0 kV lines, and 66.0 kV lines. Separately, Peninsular Malaysia and Sabah’s distribution systems, comprising overhead lines and underground cables, were 703,312 km and 5,423 km in length respectively. Peninsular Malaysia had 462 transmission substations and 85,127 distribution substations, while Sabah had 48 transmission substations and 8,312 distribution substations in 2020.
The consumption of electricity is a key driver for the electricity supply industry and spurs investments in generation, transmission, and distribution infrastructure. Over the longer term, the demand for electricity is expected to recover and exhibit growth at a healthy pace as a result of future economic growth, supporting Government policies, as well as population growth. Thus, this is expected to benefit industry players that are involved in the design, construction, installation, repair, and maintenance of utility infrastructure. Further, Tenaga Nasional Berhad has embarked on a Grid of the Future initiative which will enable the grid system to accommodate innovative energy solutions as these emerge while having inbuilt cybersecurity as well as resilience against the impact of climate change. Tenaga Nasional Berhad aims to invest RM27.0 billion between 2021 and 2023 in core upgrades and expansions of Malaysia’s grid. This too presents opportunities for industry players that are involved in the design, construction, installation, repair, and maintenance of utility infrastructure.
Government initiatives to strengthen utility infrastructure in Malaysia
The Government of Malaysia has announced several initiatives under Budget 2022 to strengthen accessibility to utilities in Malaysia.
Reducing the urban and rural development gap and improving the well-being of rural Malaysians. More than RM 2.5 billion has been prepared for various rural programs.
Digital connectivity - Telecommunication networks now can be categorized as a third utility. In the new norm, virtual services are becoming more common, The development of infrastructure and upgrading of basic telecommunications networks is necessary to meet the needs of a digital lifestyle. Therefore, the Government will allocate RM 700.0 million to implement the National Digital Network initiative. At the same time, the Malaysian Communications and Multimedia Commission (MCMC) will allocate RM 7.4 billion for 2021 and 2022 to build and upgrade broadband services. To ensure internet connectivity in institutions of higher learning, the Government has allocated RM 67.0 million to upgrade the Malaysian Research & Education Network (MYREN) line.
Bridging the economic gap - Budget 2022 will also focus on efforts to implement major national projects that are able to provide economic benefits to the local communities as well as bridge the economic gaps between regions. To reduce the urban and rural development gap, improving digital connectivity, and bridging the economic gap will require investments in underground cabling and substations, thereby benefitting industry players offering underground utility engineering services and solutions as well as substation engineering services and solutions.
Sources: Providence Strategic Partners
Plans and strategies for MN Holdings Berhad
- The company intends to enhance the machinery and equipment to expand the scale of projects
- The company intends to venture into other underground utility engineering segments, namely piped water and sewerage distribution by leveraging their current capabilities
- The company intends to venture into the assembly of neutral disconnectors for sales and distribution in Malaysia
- The company intends to secure more LSS substation projects to strengthen its substation engineering services and solutions business segment
MQ Trader Views
Opportunities
- The industry still has room space for growth, and the demand for electricity will grow in the future because people more relies on electronic products (for example EVs), therefore it will need the infrastructure company to provide the service to support the electricity demand.
- The revenue is growing to show that the company management is able to handle the company well and they are trying to continually expand their business, we can base on the plans and strategies to know the details on the step of this company try to expand
- Low debt companies have the capabilities to face any unexpected risk for example crisis, MCO, economic slowdown, and others.
Risk
- Impact of inflation. The majority of the projects take between 6 months and 2 years to complete. Accordingly, prices of key raw materials and consumables at the time of submission of tender bids or signing of contracts may not reflect the prices that they will eventually pay during the implementation of the projects. Certain the contracts are firm and fixed-price contracts, under which they commit to providing all of the resources required to complete a project at fixed unit prices. As such, the company is not able to pass on any increases in project costs.
- The order book only last until FYE 2025, the company needs to find more contracts to maintain the order book and revenue growth.
- High customer concentration risk. According to the report, Rentak Segar had contributed around 40% of revenue to the company. If Rentak Segar decreases the contracts in the future, MN holdings Berhad must have another plan to seek more new contracts.
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Discussions
Be the first to like this. Showing 14 of 14 comments
Planning to buy a few after this news. Hope it can increase 20% in short term.
MN Holdings IPO’s public portion oversubscribed by 118 times
https://www.theedgemarkets.com/article/electrical-engineering-services-provider-mn-holdings-ipos-public-portion-oversubscribed-118
2022-04-20 20:32
when the allotment unit will updates in cds acc...i get some..but till now still not updates in my cds..i used M+ broker
2022-04-27 21:47
1st ipo below PE 10 - hard to find
SOLAR IPO
EARLY BIRDS - Fresh spicy tender hot worms Waitingggg $$$$$
2022-04-28 07:41
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cannot la. list sure go down price. listed to pay debt.
Capital Expenditure - within 24 months (34.02%)
Repayment of bank borrowing - within 12 months (23.27%)
General working capital - within 24 months (25.24%)
Estimated listing expenses - within 1 month (17.47%)
2022-04-15 17:13