L&P Global Bhd (L&P) will be making its debut on Bursa Ace Market today. The company is principally involved in design and manufacture of integrated wooden based industrial packaging solutions, provision of packaging services and provision of circular supply services. Its clienteles are mainly MNC from renewable energy, automotive, electronics and semiconductor, packaging, food and medical and pharmaceutical. After an expected earnings blip in FY22 due to one off listing expenses, we expect L&P to achieve exponential growth over the next 2 years of 42% and 23% respectively. BUY with a TP of RM0.41 based on 12x PER over FY23 EPS, in line with Bursa Industrial Products Index’s 1 year forward PE.

One of its main products, Pallet is made from natural wood, engineered wood and recycled. There has been increasing demand on engineered wood which is purchased from Vietnam in USD. In order to manage on the foreign exchange risk, L&P had been converting all sales to be billed in USD to create a natural hedge. For information, two of the biggest customer, First Solar Malaysia and Celestica Electronics (M) Sdn Bhd which contributed 40% as at 31 July 2022, had started USD billing in May 2022.

Its circular supply segment is contributing a mere 1% as at 31 July 2022. Nonetheless L&P aims to expand this segment by providing more comprehensive services namely collect, repair, recycle, repurpose and resell used industrial packaging products as well as providing packaging and logistic services along its client’s value chain supplies. Such value-added service enables L&P and its clients to minimise wastage, thus increase revenue and maintain profit margins.

L&P has two existing factories in Sg Bakap, Penang and Vietnam with total built up area of 232k sq ft. It also has 3 branches in Perai Penang, Kulai Johor and Kulim Kedah as office, storage and assembly for boxes and crates. Currently, management is in the midst of identifying suitable land in Kulai/Senai to set up a new factory and also to rent a factory in Klang Valley of measuring approximately 12k sq ft for boxes and crates production as well as provide packing services and facilitate circular supply services. The new Johor factory will also support its expansion into Singapore and targeted to be completed by 3Q2025.

As at 31st July, L&P has a gearing ratio of 1.37x. With RM5m from the IPO proceeds to be used for repayment of borrowings, L&P’s gearing ratio is set to fall to 0.59x. L&P has the intention to distribute 20% to 50% of PAT as dividends. Thus, based on a conservative forecast of a 20% payout, L&P will pay dividend of 0.7sen and 0.8sen for FY23 and FY24 translating into yields of 2.3% and 2.8% respectively.

Source: Rakuten Research - 3 Jan 2023