Synergy House Bhd ([SYNERGY], 0279), a cross-border e-commerce seller and furniture exporter of ready-to-assemble (RTA) home furniture will be making its debut on Bursa Ace Market today. Riding on the increasing use of e-commerce shopping globally, Synergy had registered a revenue CAGR of 20% from FY19 to FY22.  Consequently, Synergy is expected to achieve a net profit CAGR of  19.4% from FY22 to FY25. BUY with a TP of RM0.49 by ascribing 10x  PER over FY24 EPS of 4.9sen, which is the average PE of its listed peers on Bursa Malaysia.

Synergy runs an asset-light business model where it outsources it’s in  house design, mainly on living, dining hall and bedroom sets to third  party manufacturers. This enables Synergy to focus solely on product  developments, sales and marketing in which they have over 2,000  designs distributed via online retailers, chain-store retailers and  wholesalers via a B2B sales model, as well as directly to end-consumers through in house online store and third party e-commerce platforms via B2C sales model. RTA home furniture is designed for easy assembling by end users of which the parts are in flat-packed form for ease of storage and transportation.

Synergy's business geographical risk is evenly spread, with the UK  being the top revenue contributor at 42.4%, followed by the US market  (39%) in FY22. In terms of sales channels, the B2B segment, which sells  to large-format retailers and wholesalers in bulk, accounted for 74%,  while the B2C segment, focused on in-house online store and third-party e-commerce platforms such as Lazada, Shopee, and Amazon,  contributed 26%. Moving forward, the company aims to concentrate on growing its higher-yield B2C segment by cataloguing its affordable home furniture on more third-party e-commerce platforms.

As the B2C sales segment expands, Synergy plans to utilize RM10m  from IPO proceeds to establish e-commerce fulfillment centers in  Muar, Johor, Port Klang, Selangor, and overseas within 18 months.  Currently, it has been utilizing premises of local third-party manufacturers and 98 third-party e-commerce fulfillment centers overseas resulting in cost savings. To further enhance its revenue, the company will diversify into bathroom and kitchen furniture.

Synergy does not have q formal dividend policy at this juncture. It’s gearing ratio will reduce to 0.74x upon utilization of the IPO proceeds amounting RM10m to repay bank borrowings. Being an asset light furniture player, we believe net margins c.9% is sustainable moving forward.

Source: Rakuten Research - 1 Jun 2023

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