Background

Topmix Berhad (TOPMIX) is principally involved in the marketing and sales of in-house brands of surface decorative products. The group also undertakes the design of surface decorative products internally as well as in collaboration with third-party décor paper suppliers. The surface decorative products are mainly used in commercial and residential interior surface applications, which includes wall panels, counter tops, table tops as well as fixtures and displays.

IPO Statistic

The IPO entails a public issue of 82,709,000 new ordinary shares, and an offer for sale of 19,693,000 shares at an IPO price of RM0.31/share.

Public issue:

• 19,693,000 new shares for application by the Malaysian public;

• 7,877,000 new shares for application by eligible parties;

• 5,907,000 new shares for private placement to selected investors; and

• 49,232,000 new shares for private placement to Bumiputra investors approved by MITI.

Main Competitive Advantages

1. Strong in product design and development;

2. Able to offer a wide range of surface decorative products; and

3. Experienced management team.

Valuation

At an IPO price of RM0.31/share, TOPMIX is priced at a trailing PER of 15.2x FY22 core EPS. We value the company at 12x CY25 EPS, arriving at a fair value of RM0.36/share.

Business Overview

TOPMIX is principally involved in the marketing and sales of in-house brands of surface decorative products. The group also undertakes the design of surface decorative products internally as well as in collaboration with thirdparty décor paper suppliers. The group mainly serves domestic market.

Utilisation of Proceeds

The estimated gross proceeds of RM25.6mn raised are expected to be utilised for the following:

Key Competitive Advantages

1) Strong in product design and development TOPMIX has an asset-light business model that mainly focuses on product development, and sales and marketing. Hence, the design capabilities will enable the group to design and develop the decorative products that can cater to the evolving needs of consumers.

2) Able to offer a wide range of surface decorative products The group is able to provide a wide range of surface decorative products to fulfil the diverse needs of end-user applications. The surface decorative products comprise approximately 480 designs, of which 190 high pressure laminate products are unique and exclusive to the group.

3) Experienced management team The group is led by an experienced management team headed by its managing director, Mr. Teo Quek Siang, who is in charge for the formulation of business strategies and setting the overall business direction of the group. He has 18 years of experience in the surface decorative products industry.

Key Risks Relating to Business and Industry

1) Foreign Exchange Risk;

2) Price Fluctuation of Raw Materials; and

3) Highly Dependent on Third Party Suppliers.

The revenue for FY21 surged by 40.3% YoY to RM38.6mn from RM27.5mn a year ago, mainly due to stronger sale of high-pressure laminate products following the relaxation of movement control orders. As a result, the group’s core profit jumped 102.5% YoY to RM4.4mn from RM2.2mn a year earlier. In the subsequent year, the group saw its revenue further grew by 70.4% YoY to RM65.8mn, primarily due to intensive marketing activities via product presentations as well as the increase of renovation and refurbishment activities in Malaysia. Together with higher average selling prices of high-pressure laminate products, the group’s core profit surged 82.4% YoY to RM8.0mn from RM4.4mn a year ago. Moving forward, we forecast the revenue and core profit to be stronger, supported by a better outlook of surface decorative products market.

Future Plans and Business Strategies

The Group’s Future Plans and Business Strategies Are as Follows:

1) Expand Into the Assembly of Melamine Faced Chipboard Products

The group plans to expand into the assembly of melamine faced chipboard (MFC) products as this will enable the group to expand its product offering. The group will construct a new factory for MFC assembly with 1 assembly line that has maximum production capacity of about 500 pieces per day. On the other hand, the group also plans to purchase and install an enterprise resource planning software for day-to-day operational activities.

2) Further Expand Into the Northern Region of Peninsular Malaysia

The group intends to set up a new sales office in Penang in order to capture the business opportunities in the northern region of Peninsular Malaysia.

3) Intend to Strengthen the Mobile Application of TOPMIX

TOPMIX intends to further beef up the mobile application of the group by appointing a third-party software developer to enhance the functionality and versatility of its mobile application.

4) Further Strengthen the Sales and Marketing Activities

The group also plans to strengthen its marketing and sales activities via participating trade exhibitions and advertising its products in trade magazines. Besides, the group will organise more product presentations. Meanwhile, the group intends to expand its sales force in Johor and Selangor as well.

Outlook

According to an independent market research report prepared by Providence Strategic Partner, which was enclosed in the IPO prospectus, the surface decorative products market is expected to grow from an estimated RM640.2mn in 2022 to RM760.0mn in 2026 at a CAGR of 4.4%. The demand will be mainly driven by the recovery and growth in commercial and residential property markets as well as foreign and domestic investment growth.

Balance Sheet

On a pro forma basis, post-listing with utilisation of IPO proceeds, the balance sheet is expected to improve from a net debt position of RM20.1mn to a net cash position of RM0.4mn.

Dividend Policy

The Group Currently Does Not Have Any Formal Dividend Policy.

Earnings Forecast

We estimate the group to record earnings growths of 4.5%, 16.7% and 21.0% to RM8.4mn, RM9.8mn, and RM11.8mn for FY23, FY24 and FY25 respectively, supported by a better industry outlook according to the independent market research report as well as better margins. We expect the domestic market will remain as the primary revenue generator.

All in, our FY23-25 earnings projections are premised on the key assumptions below:

• Revenue growth of 5.0%, 7.5%, and 9.5% for FY23/FY24/FY25 respectively; and

• Gross margins of 36.0%, 36.1%, and 36.3% for FY23/FY24/FY25, respectively.

Valuation

Currently, there is no listed company from Bursa Malaysia that is directly comparable with TOPMIX. Nevertheless, we use SYNERGY, a furniture player that mainly focuses on the design, development and sale of ready-to-assemble furniture, for peer comparison. We assign a target PE multiple of 12x to TOPMIX and arrive at a fair value of RM0.36/share. This is after considering the group has:

a. Asset-light business model that focuses on design and development;

b. Ability to offer a wide range of surface decorative products; and

c. Experienced management team.

Source: TA Research - 3 Apr 2024