We are positive on Wegmans Holdings Bhd (“Wegmans”) growth trajectory predicated on its doubling of capacity which will see earnings surge over 80% in FY20 coupled with their proposed transfer to the Main Board. We are initiating a BUY as we ascribed a target price of RM0.45 based on 9.3x PER FY20 as per its closest related peers.

Wegmans which made its debut on ACE Market of Bursa Malaysia back in March 2018 is now ready to move to the Main Board as they have just submitted their proposed listing transfer to the authorities and is expected to be completed by 4Q19. Wegmans is a Muar based integrated solid wood home furniture manufacturer with over 20 years of track record. Over 90% of its production is exported to over 70 countries spreading to more than 400 customers with major markets being North America and Japan.

Wegmans have been operating at close to full capacity for the past 2 years. However, with the capex of RM25m it will see capacity expansion doubling under phase 1 with investments in machinery and equipment to increase automation, targeting to commence production by 3Q19 which will see significant earnings contribution in FY20. Furthermore, furniture sector is one of the prime beneficiaries of the current stronger USD/MYR.

Wegmans has embarked on original brand manufacturing (“OBM”) with the launch of its own brand “Collino Designs” at the Malaysian International Furniture Fare 2019 and received encouraging response targeting Asian markets priced at the upper medium range.

Wegmans balance sheet remains healthy with net gearing of 0.1x. Although there is no formal dividend policy, they have been paying dividend for the past 2 years translating to 1.5% yield. Net margins circa 13% remains above average compared to peers and earnings are expected to remain robust with expansion plans coming onstream in FY20 onwards coupled as an OBM would set it apart from its competitors.

Source: Rakuten Research - 1 Jul 2019