Background

Crest Group Berhad (CGB) is principally involved in the provision of imaging, analytical and test solutions that are mainly used for quality inspection, sample analysis and research & development.

IPO Statistic

The IPO entails a public issue of 130,705,300 new ordinary shares, and an offer for sale of 103,890,000 shares at an IPO price of RM0.35/share.

Public Issue:

• 43,280,000 new shares for application by the Malaysian public;

• 12,984,000 new shares for application by eligible parties; and

• 74,441,300 new shares for private placement to selected investors.

Main Competitive Advantages

1. Proven track record in imaging, analysis and testing industry;

2. Strong relationship with a wide network of suppliers; and

3. Experienced management team.

Valuation

At an IPO price of RM0.35/share, CGB is priced at a trailing PER of 14.4x FY23 core EPS. We value the company at 18x CY25 EPS, arriving at a fair value of RM0.50/share.

Business Overview

CGB is principally involved in the provision of imaging, analytical and test solutions that are mainly used for quality inspection, sample analysis and research & development. The group serves a wide range of clients across various sectors, including semiconductor, electrical & electronic, academic, automotive, oil and gas, aviation, life sciences and healthcare. Meanwhile, the group currently operates offices in Malaysia, China, Singapore, and Thailand.

Utilisation of Proceeds

The estimated gross proceeds of RM45.8mn raised are expected to be utilised for the following:

Key Competitive Advantages

1) Proven track record in imaging, analysis and testing industry

CGB has a strong track record of 25 years in the imaging, analysis and testing industry. The group has a diverse customer base across 4 countries. The group can provide customised solutions to a wide range of clients across various sectors, including semiconductor, electrical & electronic, academic, automotive, oil and gas, aviation, life sciences and healthcare.

2) Strong relationship with a wide network of suppliers

Along the years, the group has built strong relationships with a range of equipment partners and suppliers globally to develop customised solutions for clients.

3) Experienced management team

The group is led by an experienced management team, consisting of its group managing director, Mr. Lim Siong Wai, and its executive directors, Mr. Au Chun Mun and Mr. Yap Kian Meng. The management team has an average of 28 years of industry experience, with in-depth knowledge of business operations.

Key Risks Relating to Business and Industry

1) Continuity of order book is not assured; and 2) Highly dependent on equipment partners and suppliers.

Financial Highlights

The revenue for FY22 grew by 14.7% YoY to RM170.2mn from RM148.4mn a year ago, mainly driven by higher revenue from Malaysia's operations due to increased sales of advanced analytical and testing equipment. As a result, the group saw its core profit jump by 11.2% YoY to RM18.6mn from RM16.7mn a year ago. In the subsequent year, the group saw its revenue further jump by 10.2% YoY to RM187.6mn, primarily due to higher sales from Thailand and China. Together with better gross profit margin, the group’s core profit surged 12.8% YoY to RM21.0mn.

Moving forward, we forecast revenue and core profit to be stronger, underpinned by the positive outlook for the imaging, analysis, and testing industry due to increasing demand from the electrical & electronic and semiconductor industries.

Future Plans and Business Strategies

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

1) Setting up a new centralised headquarter

The group plans to establish a new headquarter in Selangor to streamline and centralise its operations in the central region of Malaysia. This will enable the management team to manage the operations and resources more efficiently.

2) Purchase additional equipment for the demonstration rooms

The group intends to purchase additional advanced imaging equipment and sample management equipment for its demonstration rooms in Malaysia, China and Thailand.

3) Expand business presence in Vietnam and strengthen growth in China and Thailand

CGB also intends to establish a new office in Vietnam. In addition, the group plans to further strengthen its presence in China by setting up a new office in Chengdu and Shenzhen. Meanwhile, the group will hire additional personnel for its Thailand office.

4) Expansion of services and support team

The group intends to further expand the technical support and maintenance team by hiring additional headcount. This will enable the group to generate more recurring income via after-sales services.

Outlook

According to an independent market research report prepared by Smith Zander, which was enclosed in the IPO prospectus, the imaging, analysis and testing industry in Malaysia grew from RM4.3bn in 2020 to RM7.3bn in 2023 at a CAGR of 18.7%. Going forward, the market research firm expects the imaging, analysis and testing industry in Malaysia to see positive prospects, underpinned by the increasing demand from electrical & electronic and semiconductor industries.

Balance Sheet

On a pro forma basis, post-listing with the utilisation of IPO proceeds, the balance sheet is expected to be in a net cash position of RM68.7mn or 7.9sen/share. Dividend Policy The group intends to distribute a dividend of at least 30.0% of the group’s net profit to shareholders.

Earnings Forecast

We estimate the group to record earnings growths of 5.0%, 8.1% and 14.9% to RM22.1mn, RM23.8mn, and RM27.4mn for FY24, FY25 and FY26 respectively, supported by business expansion plan as well as a better industry outlook according to the independent market research report.

All in, our FY24-26 earnings projections are premised on the key assumptions below:

• Revenue growth of 10.0%, 12.0%, and 13.0% for FY24/FY25/FY26 respectively; and

• Gross margins of 28.5%, 28.6%, and 28.8% for FY24/FY25/FY26, respectively.

Valuation

We assign a target PE multiple of 18x to CGB and arrive at a fair value of RM0.50/share. This is after considering the group has:

a. Proven track record in provision of imaging, analytical and test solutions;

b. A strong network of equipment partners and suppliers; and

c. Experienced management team.

Source: TA Research - 24 Sept 2024