Spring Art Holdings Bhd (“SPRING”) is a ready-toassemble (“RTA”) furniture maker making its debut on the ACE market today. The group is in the midst of doubling its production capacity mainly to cater for rising demand from North America and Europe. BUY with a target price of RM0.32 based on 12.3x PER FY20 as per the average valuation of industry players.

SPRING is an RTA furniture maker has product designing and development capabilities with more than 20 years experience in the furniture industry. Product range includes office furniture, bedroom furniture, living room furniture and others, contributing a diversified revenue base from 35 countries predominantly India, Japan, UAE and Saudi Arabia. 100% of the revenue are derived from export markets, supplying to distributors, furniture showroom retailers, home furnishing chain store and ecommerce companies.

One of SPRING’s competitive advantage is their adoption of automation manufacturing process, allowing them to standardise furniture specification hence lower reliance on foreign labour as compared to its peers. Additionally, the unassembled flat pack format in the shipping process enables the reduction of shipping costs thereby adding to its competitive edge. As such, SPRING as a RTA furniture maker enjoys higher profit margin when compared to the conventional furniture players.

Bulk of the IPO proceeds, 71.9% or RM17.6m is earmarked for construction of a new factory (“Factory C”) with 2 new production lines for export to North America and Europe as well as existing customers. To date, SPRING owns 3 facilities in Muar, Johor operating 6 production lines. The new factory will see its current production capacity almost doubling from 337,016 units to 674,000 units per annum. Meanwhile, 15.0% of the proceeds is allocated for general working capital and 13.1% will be utilised for listing expenses.

Gearing ratio is expected to remain at current level circa.0.2x post listing. We like SPRING for its superior net margins approximately 16% vs industry’s average of 9%.

Source: Rakuten Research - 8 Nov 2019