YewLee will be making its debut on Bursa Ace Market today. The Company is founded by Mr Ang Lee Leong with more than 36 years of experience in the industry. YewLee is principally involved in manufacturing of industrial brushes and trading of industrial hardware and machinery parts. Apart from Malaysia, it has also footprints in Thailand, Vietnam, Indonesia, Taiwan to name a few. According to Protégé Market Research, Malaysian industrial brush industry is projected to grow at a 5 year CAGR of 9.6% from 2022 to 2026. With that, we forecast a 3-year net profit CAGR of 10.6% of RM14.0m for FY23. BUY with a TP of RM0.37 premised on 14x PER based on Bursa Malaysia Industrial Products Index current PER.

YewLee distinguishes being a customised brushes provider, whereby brushes are designed, customise and detachable according to the machinery or equipment’s requirement to fit all purposes. As it is a wearable product, most of its sales are repetitive from clients spreading various industries such as rubber glove manufacturers, industrial manufactures, agriculture, electrical and electronics contract manufacturers, food processing and industrials and commercial cleaning.

YewLee has been riding on the glove demand boost during the pandemic period past 2 years. For FY2021, rubber glove manufacturers contributed a total of 85.4% to revenue with Top Glove being the largest of around 32%. Management guided that orders from rubber glove manufacturers are still intact going forward. Meanwhile, YewLee has plans to widen its customer base such as quarrying, semiconductors and glass making manufacturers which management believe they could offer customisation brushes to these segments for better margins.

To reduce reliance of manual labour, the Company plans to utilise RM10.9m from its RM37.3m IPO proceeds to increase automation level by purchasing additional manufacturing machineries and equipment. The purchase of 4 additional CNC lines to its current 18 CNC lines could increase its industrial brush production from 3.08m pieces per annum to 4.26m pieces per annum and at the same time, reduce overhead fixed cost.

YewLee had just announced its 1QFY22 result where net profit came in at RM1.2m after incorporating partial of its listing expenses, higher raw material cost and seasonally lower sales. We believe overall sales will pick up in the coming quarters attributed to the higher manufacturing activities in the markets YewLee is serving. YewLee had also announced its first interim dividend of 0.3 sen despite not having a formal dividend policy illustrating its desire to reward shareholders. Post listing its balance sheet remains strong with a net cash of RM44.8m.

Source: Rakuten Research - 7 Jun 2022