Zantat Holdings Berhad (ZANTAT, 0301) will make its debut on the Bursa Ace Market today. ZANTAT is a leading producer of high-grade Calcium Carbonate (CC) powder and CC dispersion products in Malaysia. Bolstered by robust growth, we expect ZANTAT to register core net earnings of RM7.6m and RM8.8m for FY24F and FY25F respectively. We recommend a BUY with a fair value of RM0.35 based on FY24F PE of 12x, which is in line with industry peers.

With nearly four decades of industry experience, ZANTAT emerges as Malaysia's third-largest calcium carbonate (CC) producer. Its core products, including ground calcium carbonate (GCC) and calcium carbonate dispersions, cater to various sectors such as the plastic masterbatch, rubber glove, and PVC pipe industries. Additionally, ZANTAT engages in ultrafine GCC powder processing, industrial minerals trading, and limestone quarry product sales. The Indian market significantly contributes to its revenue, while its presence is fortified by four production plants and limestone quarry lands in Perak, commanding 7.0% of Malaysia's GCC production volume.

ZANTAT is poised to benefit from the thriving Indian plastic industry, with forecasts indicating substantial growth by 2027- 28. ZANTAT's plans to expand GCC production capacity align with this growth trajectory, supported by key customers like Alok Group and Sonali Group. This positions ZANTAT to effectively leverage India's economic expansion.

Venturing into the bioplastic compounding business, ZANTAT maximizes the underutilized capacity of Plant 2 to cater to the rising demand for biodegradable alternatives. Expected commercialization by 1Q24 underscores the company's commitment to synergizing with existing operations and capitalizing on the growing market for biodegradable plastics, driven by environmental concerns. Additionally, ZANTAT's diversification into producing ultra-fine GCC and downstream operations, including bioplastic compound manufacturing, further strengthens its portfolio.

We expect FY24F-FY26F earnings to grow by around 12% per annum, underpinned by increased GCC sales in the Indian market, the launch of a new GCC line, and the rising sales from ultra-fine GCC and biodegradable compound. In addition, ZANTAT has a healthy balance sheet, with a gearing ratio of 0.2x as of Dec FY23, a status expected to persist post IPO.

Source: Rakuten Research - 27 Mar 2024

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