Making its debut on the Ace Market today, CEKD Bhd (CEKD) is a die cutting solutions provider, involved in the manufacturing of die cutting moulds and trading of related consumables, tools and accessories. Heightened demand for die-cutting mould is highly anticipated following the economic recovery. CEKD is also planning to capture bigger market by expanding its business within the Southeast Asia region. We expect net profit to be RM5.9m and RM7.7m for FY2021 and FY2022 respectively. BUY with a target price of RM0.60 based on 15x PER FY22, as per the estimated PER FY22 of Bursa Malaysia Industrial Production Index.

CEKD has more than 30 years of experience in the die-cutting mould industry. CEKD via its wholly-owned subsidiaries (namely Sharp DCM, Focuswin and Hotstar), serves 1,309 customers across a spectrum of industries and has built solid relationships with its top customers.

Die-cutting tools manufacturing industry in Malaysia is projected to expand by a CAGR of 3.2% from 2019 to 2025, partly driven by the growth of paper and paper products industry in e-commerce sector, and trend of environmentally friendly packaging. The group also benefit from the growth of the E&E industry in Malaysia which has been supported by continuing inflows of foreign investments. In addition, strong government support is expected to boost growth of die-cutting industry including Industry4WRD related financial facility support and incentives.

Of the RM24.3m raised from the IPO, RM8.8m will be utilised to acquire a factory to consolidate 2 of Hotstar’s operations under one roof to improve Hotstar’s operations. As part of automation initiative, RM3.0m is allocated to purchase new machineries to increase its production efficiency. Meanwhile, RM1.3m will be used to finance the upgrade and development of computer software and server including its CAD software and Enterprise Resource Planning system.

To expand its foothold in Southeast Asian market, RM1.5m will be utilised in marketing activities including product demonstration sessions locally and overseas, regional trade events and exhibitions as well as advertisement in international trade magazines. The group aims to increase its export revenue progressively over the next 2 years.

Amid the positive industry outlook and CEKD’s expansion plan in place, we forecast net profit growth of 31.9% in FY22 from a low base earnings in FY21 due to dampen demand arising from recent MCO. The group also has a healthy balance sheet with gearing ratio of 0.3x as at 31 March 2021. Post listing, the group is expected to stand at a net cash position of RM27.7m.

Source: Rakuten Research - 29 Sept 2021