Wentel Engineering Holdings Bhd (WENTEL, 0298) is set to make its debut on Bursa Ace Market today. Wentel is a well-established metal fabricator of semifinished metal products, metal parts, as well as an assembler of finished products. Based on its (i) substantial 55% growth in fabrication facilities’ built-up area via its new manufacturing plant; (ii) conversion from indirect distribution channels to direct dealing with its major customers; (iii) increasing contribution from Singapore due to its physical presence to facilitate after-sales services, we expect Wentel to register core net earnings of RM17.1m and RM19.2m for FY24 and FY25, respectively. BUY with an FV of RM0.30 based on 20x over FY24 EPS, 20% discount due to its small market cap compared to Bursa Malaysia listed peers.

Wentel intends to use the IPO proceeds of RM65m to expand its production capacity by (i) constructing a new manufacturing plant that will increase the production build-up area by 55% upon commencement in 2HFY25, and (ii) purchasing advanced fabrication parameters machinery and equipment. This investment will enable the group to broaden its product range, meeting customer requirements more effectively in terms of precision, accuracy, metals used, and metal thickness.

With a proven track record of over two decades, Wentel serves various industries, including security, machining, electrical & electronic (E&E), as well as medical. However, more than 50% of its revenue prior to FY22 came from the indirect channel. To better enhance collaboration with customers on product-related matters, Wentel strategically pivoted towards a 100% direct-channel business model. For instance, it now deals directly with its Rapiscan Group and Customer E Group, which collectively contributed to more than 60% of FY22 revenue.

Leveraging its physical presence in Singapore for after-sales services, the group has strategically formed alliances to elevate Wentel's global footprint, thereby enhancing brand awareness and facilitating access to a larger customer base. This strategic move also serves as a risk mitigation measure, minimizing exposure to volatility stemming from local economic fluctuations. Remarkably, the group has registered an impressive Compound Annual Growth Rate (CAGR) of 59% on its Singapore revenue, escalating from RM15.8m in FY20 to RM39.9m in FY22.

The company's balance sheet is solid, with a net cash position of RM21m as of 3QFY23. Wentel does not have any formal dividend policy at this juncture.

Source: Rakuten Research - 6 Feb 2024

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