To be listed on the ACE Market, ACO Group Bhd (“ACO”) is an established distributor of electrical products and accessories supported by diversified clientele in Malaysia. We derive a fair value of RM0.28, based on 9.5x PER FY21 as per the FBM Small Cap Index. Given the current challenging market conditions, we believe share price upside may be capped.

Having commenced since 1991, ACO involves in the distribution of electrical products and accessories including cables, wires, electrical protection and devices as well as electrical appliances. The group distributes a total of 88 brands (85 third party & 3 own brands) besides being an authorised distributor for 10 international brands namely Schneider Electric, OMRON and Siemens, just to name a few. The authorised distributorship has been consistently contributing revenue of over 30% to the group in the past 3 years. >70% of the revenue is generated from industrial users such as electrical contractor and product manufacturer while ~30% is contributed by reseller. ACO’s operations are supported by 8 sales outlets, 2 distribution centres and a lighting concept store mainly based in Johor, Selangor and Melaka.

25.9% or RM4.2m of the proceeds will be used to set up 3 additional sales outlets in Johor and a lighting concept store in Kuala Lumpur. RM2.5m is allocated for setting up a new head office and distribution centre in Johor and RM2m will be utilised for purchasing of new trucks and upgrading of IT system. In addition, ACO will set up an additional lighting concept store in Johor and 4 new outlets via internal fund, giving a total number of 15 outlets, 4 distribution centres and 3 lighting concept stores by 2022.

Post listing, balance sheet will remain healthy with net gearing level of 0.16x. With the operational expansion in place, we expect the earnings driver to be supported by the growth within the construction as well as the power and electrical industry moving forward.

Source: Rakuten Research - 18 Mar 2020