Mestron Holdings Bhd (“Mestron”) is one of the largest steel pole manufacturers in Malaysia with over 15 years of track record is making its debut on the ACE Market. Recommend BUY with a target price of RM0.20 based on 13x PER FY20 as per its closest industry peer.

Mestron is mainly involved in the manufacturing of steel pole products with a comprehensive range covering standard street light poles, decorative light poles and specialty poles. In addition, the company also has a trading arm for outdoor lighting products contributing 35.4% to group’s revenue with the rest from the manufacturing division. Leveraging on its experienced technical team and well-equipped fleet of machinery, the group has supplied to various notable construction projects such as East Klang Valley Expressway and Coastal Highway Southern Link project as a testament to their committed quality.

52.4% of the proceeds will be used for the expansion of its current manufacturing facility and the acquisition of machineries and equipment. The expanded facility which is expected to complete by 2H 2021 will double Mestron’s production capacity from 5,700 MT/year to 11,400 MT/year. Management plans to expand their revenue stream from specialty poles which garner higher gross profit margin. The specialty poles expansion will particularly targets clientele in the telecommunication industry, tapping on the growth of 5G infrastructure roll out by local telco players. Another catalyst to increase Mestron’s product demand will be the growing trend of energy-saving outdoor lighting products.

Mestron also intends to enhance its international presence namely Brunei, New Zealand and Sri Lanka. Meanwhile, 20.5% of the proceeds is allocated for working capital while another 15.8% is for repayment of bank borrowings.

Orderbook as at 30 April 2019 stood at RM31.6m and with monthly order replenishment of RM5m to RM6m should be able to provide recurring income to the group. Post listing, gearing ratio is set to improve from 0.48x to 0.23x. Net profit is expected to achieve double digit growth of 12.9% and 15.6% respectively.

Source: Rakuten Research - 18 Jun 2019