MTAG Group Bhd (“MTAG”) debuting on the ACE Market today, is a customized material converting specialist, that will see its production capacity doubling by year 2023. BUY with a target price of RM0.83 based on 15x PER FY20 as per the average PE range of closest industry players (13x to 20x) backed by its far superior double-digit net margins.

MTAG is principally involved in the provision of customised converting services, printing of labels and stickers for MNCs. The group’s core competence is converting various type of materials such as mesh, adhesive tapes, papers, plastics, foams, cardboards and metals into predefined shapes and sizes. MTAG is also an authorised distributor of 3M and Henkel industrial tapes and adhesives products.

To date, MTAG serves over 600 customers across all market segments with key clients such as ATA IMS, V.S. Industry, SKP Resources hence indirectly services Dyson Manufacturing Sdn Bhd (“Dyson”). Having more than 10 years of business relationship with Dyson, 80% of MTAG’s revenue are derived from Dyson. To recap, Dyson Ltd is a British technology company renowned for its cutting-edge smart home appliances.

Presently operating at a production capacity of 80%, bulk of the IPO proceeds (~46%) is earmarked for expansion via land acquisition in Johor Bahru for a new manufacturing plant plus purchasing of 11 new machines, including a digital offset printer, which has higher efficiency compared to the conventional printer.

The expansion will see MTAG’s annual production capacity for printing of labels and stickers increase by almost 100% from 324.5m pieces to 636.8m pieces by year 2023. Meanwhile, 18% of the proceeds will be utilised for capital expenditure while 14% is for repayment of bank borrowings resulting with an annual interest savings of RM0.5m.

Post listing and with the lPO proceeds, the group will be sitting on a RM91m cash pile. MTAG has a dividend policy payout of 20%, translating to dividend yield of 2.1% and 2.3% in FY20 and FY21 respectively. Riding on the growth of its major client as well as the electrical and electronics industry, EPS is expected to grow by 13.3% and 12.6% in FY20 and FY21 respectively.

Source: Rakuten Research - 25 Sept 2019