• MYR0.55 FV based on 13x FY25F P/E. Colform Group plans to raise MYR41.2m through its IPO to fund product diversification, storage expansion, and entry into West Malaysia. Backed by government support for Industrialised Building System (IBS) adoption and increased development budgets for Sabah, the group is well-positioned for growth. A record-high construction orderbook underpins strong revenue and margin expansion, with a projected 42.7% earnings CAGR (2023-2026F). With a FY25F ex-cash P/E of 6x, the IPO valuation is compelling.
• Qualified one-stop steel products provider. With a proven 20-year track record, Colform primarily serves East Malaysia, offering a range of steel and related products. Its diverse customer base includes walk-in clients, hardware shops, stockists, and various segments within the construction industry's value chain, including contractors and property developers.
• Evolving from steel manufacturer to leading IBS contractor. Colform is transitioning downstream from steel manufacturing to becoming a leading IBS contractor in Sabah. As a Construction Industry Development Board (CIDB) G7 contractor, it undertakes IBS steel framing, construction, and engineering projects. This shift integrates its operations, boosting margins and reducing reliance on steel price volatility (as evidenced by its recent performance). By 23 Dec 2024, Colform's orderbook hit a record MYR34.6m, with MYR15m from its high-margin supply and installation services segment.
• Sabah's push for IBS and infrastructure projects. In Sabah, IBS and steel roofs are preferred due to logistical advantages, cost-effectiveness, ease of installation, and sustainability, reflecting regional and government-driven priorities. Budget 2025 has allocated MYR6.7bn for Sabah's development, increasing the state's special grants to MYR600m, and including plans to upgrade 543 schools and build 44 new schools nationwide. The Sabah State Government plans to construct 3,000 homes under the Rumah Mesra Sabah Maju Jaya programme with a MYR250m funding. Government incentives, such as tax allowances and funding for IBS adoption, together with construction industry growth, further support growth. Furthermore, Sabah infrastructure projects like the Pan Borneo Highway, bodes well for Colform's downstream steel products and trading of highway guardrail (OEM) products which is approved by the Public Works Department (PWD).
• Forecasts and valuation. We project a 3-year earnings CAGR of 42.7% and ascribe a 13x P/E to its FY25F earnings to derive our MYR0.55 FV. The valuation is in line with the average trailing P/E of its peers.
• Key risks: Steel prices and FX fluctuations, supply chain disruptions, and a shortage of foreign workers.

Source: RHB Research - 20 Jan 2025