DPI Holdings Bhd ("DPI"), an established aerosol paint manufacturer with over 30 years of track record is making its debut on the Ace Market. BUY with a target price of RM0.30 based on 14x blended PER FY20 as per regional industry players. 

DPI's Own Brand Manufacturing ("OBM") segment is anchored by three in-house brands, namely "DPI", "Anchor" and "Kromoto" supported by a wide distribution channel with close to 700 customers locally. Its private label manufacturing services ("OEM") has been growing at 3-year CAGR of 7.2% mainly driven by global clients as a testament to its superior product quality. 

Bulk of the IPO proceeds (55%) is earmarked for a new factory equipped with 4 fully-automated aerosol filling lines expected to be completed by 2H2019. DPI also plans to fully automate the existing lines and streamline the manufacturing process for better cost efficiency and higher productivity. By 1 H2020, all the 8 production lines will cater for the aerosol products, significantly boosting production capacity from the current 9.7m aerosol cans to 20m per annum. 

DPI is allocating RM3m for sales and marketing activities particularly for international events. This will enhance DPI's products visibility overseas in tandem with the Group's intention to penetrate into Myanmar and Vietnam markets. We believe these two countries provide ample growth opportunities in aerosol products buoyed by the increasing DIY culture as well as urbanisation and motorisation in the region. 

DPI has a strong balance sheet with zero borrowing and net cash position prior its listing. While net cash will increase to RM47.3m post listing, it also has a commendable net margin at 3-year average of 16.8%. We expect net profit to grow notably at 28% in FY2020 on its double capacity expansion driven by rising demand for aerosol paint products especially within the region.

Source: Rakuten Research - 7 Jan 2019