Financial Highlights

The key financial highlights based on the historical audited combined financial statements of the Group for the Financial Years and Period Under Review are set out below:

• The revenue increased from RM 66 mil (FYE 2019) to RM 120 mil (FYE 2021) which shows that the company market share is increasing.
• The gross profit margin maintained above 20% from FYE 2019 to FYE 2021, this also proves that even though the market share increased the company can still maintain its competitive advantage.
• PAT margin increased from 8.52% (FYE 2019) to 15.05% (FYE 2021), this is because 50% ~ 100% of profit from Vietnam operations are exempted from taxation.
• The gearing ratio is 0.63 times on FYE 2021, it is not under the safety benchmark but still acceptable, therefore we have to keep track of the company's debt status in the future. (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

The Group’s top 5 major customers for the Financial Years Under Review are as follows:

According to the details, the top 5 customers are around 80%. The company is dependent on its top 1 company which contributes 59% of revenue The company is facing high customer concentration risk, which means that if the top 1 customer decides to change their supplier, it will face a serious impact on its financial result.

Major Suppliers

The Group’s top 5 major suppliers for the Financial Years Under Review are as follows:

According to the details, the top 5 suppliers are 63.11%. The company mentioned they are not dependent on any of its top 5 major suppliers as they are able to source the same supplies from alternative suppliers at similar prices.

Industry Overview

According to research from SMITH ZANDER, the performance of the wooden industrial packaging industry in Malaysia grew from RM1.54 billion in 2017 to RM1.88 billion in 2021, at a CAGR of 5.11%. Prior to the COVID-19 pandemic, the growth of the wooden industrial packaging industry was resilient, registering a 6.25% YOY growth in 2019. However, the industry recorded a decline of 8.02% in 2020 which was mainly a result of mandatory closures of non-essential businesses during the COVID-19 pandemic, leading to a slowdown in manufacturing activities which affected the demand for wooden industrial packaging. In 2021, the wooden industrial packaging industry improved by 9.30% YOY to RM1.88 billion.

In Vietnam, the performance of the wooden industrial packaging industry grew from VND3.46 trillion (RM 653.94 million) in 2017 to an estimated VND7.06 trillion (RM1.28 billion) in 2021, at a CAGR of 19.52%. Despite the outbreak of the COVID-19 pandemic and its adverse economic impact, the wooden industrial packaging industry in Vietnam continued to record a YOY growth of 5.23% in 2020. In 2021, the wooden industrial packaging industry in Vietnam recorded a robust YOY growth of 46.17%. This is in line with the growth in Vietnam’s manufacturing GDP and wholesale and retail trade GDP. L&P Group is well-positioned to leverage the growth of the wooden industrial packaging industry, which is driven by the preference for wood over plastics as material for wooden industrial packaging, as well as expected growth in manufacturing, trade and e-commerce. Further, the escalating US-China trade war is also expected to drive MNCs in setting up manufacturing facilities in Malaysia and Vietnam, which will be beneficial for L&P Group’s business growth in these 2 markets.

Source: SMITH ZANDER

Business strategies and prospects for L&P Global Berhad

The business strategies and plans are set out below:

1. The company plans to strengthen its presence in the Northern region by expanding its operations in Perai, Penang and Kulim, Kedah.
2. The company plans to strengthen its presence in the Southern region by expanding its operations in Johor.
3. The company plans to expand its geographical presence domestically to Klang Valley and regionally to Singapore.
4. The company intends to purchase new machineries to support the expansion of the business operations.
5. The company plans to expand the circular supply services to offer a more comprehensive circular supply chain solution to the customers.

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Opportunities

1. Strong financial results. The company revenue is growing while the gross profit margin still maintains above 20%, which shows that the management can operate the company very well.
2. The company has 38 years of experience in the industrial packaging industry, with in-depth technical product and manufacturing expertise. The Group has been operating in the industrial packaging industry for 38 years. They have in-depth technical knowledge of wood materials to advise the customers on the appropriate types of wood materials, designs and sizes of industrial packaging products that are suitable to their requirements and specifications.

Risk

1. The company is dependent on the availability of foreign workers for manufacturing activities. The Group is reliant on foreign workers to carry out the manufacturing works due to the labour-intensive nature of the industry, as it is difficult to hire and retain local workers. The loss of the existing foreign workers without timely replacements may adversely disrupt the operations. Further, costs of foreign labour may continue to increase in the future as the Government continues to revise the relevant policies which may negatively affect the financial performance.
2. High customer concentration risk. The company is dependent on its top 1 company which contributes 59% of revenue to the company. The company is facing high customer concentration risk, which means that if the top 1 customer decides to change their supplier, it will face a serious impact on its financial result.

​Click here to continue the IPO - L&P Global Berhad (Part 2)​

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