Posted by kiaralim19 > 2021-07-01 13:11 | Report Abuse

Stock Idea: Scanwolf, Transforming to a Wolf Scanwolf Corporation Berhad (Ticker: 7239 SCNWOLF) Expected Holding Period 4 weeks Investment Highlight 1. Scanwolf Corporation Berhad (Scanwolf) and its subsidiary companies are principally involved in the manufacturing of plastics extrusion products and Property Development in Kampar, Perak. 2. Despite a challenging business environment during the pandemic, Scanwolf recorded an improved 3QFY21 result due to an increase in revenue of both Manufacturing and Property Division. 3. Scanwolf is expanding the production capacity of its existing business while venturing into a new segment which is likely to benefit from the COVID19 pandemic. 4. Issuance of ICULS (2 ICULS for every 2 existing Scanwolf Shares), with an issuance price of RM0.10/ICULS at an exercise price of RM0.30, with 1 FREE warrant for every 2 ICULS subscribed. Ex-date 7 July 2021. Profile of ICULS: Tenure of 5 years, with interest rate of 3% p.a. Company Background Listed on the Second Board of Bursa Malaysia in 2007 and subsequently transferred to the Main Board in 2009, Scanwolf Corporation Berhad (Scanwolf) and its subsidiary companies are principally involved in the manufacturing of plastics extrusion products and Property Development in Kampar, Perak. The Group has plastic extrusion manufacturing plant and warehouse in Tronoh, Perak and a warehouse in Shah Alam, Selangor. Scanwolf is expanding its business into manufacturer of vinyl flooring since first quarter of 2020 and to date, the Group is the biggest manufacturer of furniture edging products in Malaysia. The Group’s property projects are located close to Universiti Tunku Abdul Rahman, Hospital UTAR, and an integrated bus terminal (Terminal Kampar Putra). Investment Merits 1. Despite a challenging business environment during the pandemic, Scanwolf recorded an improved 3QFY21 result by reporting a revenue of RM11.8 million, (+RM3.6 million against 3QFY20) as well as a profit before tax ("PBT") of RM0.71 million (vs loss before tax ("LBT") of RM2.45 million in 3QFY20). This was mainly due to an increase in revenue of both Manufacturing and Property Division. 2. Benefitting from the US-China Trade War Furniture Manufacturer in the ASEAN region has been busy due to the order shifted out from China and moved to ASEAN. The Group has since November 2020 received a hike in purchase orders for its plastic edging business from the southern region of Peninsular Malaysia. However, due to the limited production capacity, the Group has had to turn down a high amount of the orders. To accommodate the surge in demand and an order backlog of (400 MT), Scanwolf intends to purchase two (2) new production lines for its plastic edging business (to increase the maximum production capacity by approximately 47%, from 300 MT per month to 440 MT per month). The installation of new production lines is expected to be completed by 31 May 2021 and scheduled to commence operations by 30 June 2021. 3. Expanding its existing luxury vinyl tiles business. Scanwolf’s flooring division has maximum production capacity of 1,100 boxes per month and is operating at 90% capacity, hence the Group intends to add one (1) unit of pressing machine to increase the maximum production capacity by 33%, from 1,100 boxes per month to 1,460 boxes per month. 4. Rehabilitating the Balance Sheet. Scanwolf has announced a series of corporate proposal to rehabilitate its balance sheet. Such proposal which consists of:- i) Rights Issue of ICULS with Warrants entails the issuance of up to RM10,497,120 nominal value of ICULS at 100% of its nominal value of RM0.10 on the basis of 2 ICULS for every 2 existing Scanwolf Shares held by the Entitled Shareholders together with up to 52,485,600 Warrants on the basis of 1 Warrant for every 2 ICULS subscribed by the Entitled Shareholders. ii) Creditor Capitalisation iii) Share Issuance Scheme of up to 15% of the total number of issued Scanwolf Shares. Our View Scanwolf is in the midst of transforming from a property developer to a diversified business group which consists of property developer, building materials supplier and plastic film manufacturer. We think such transformation is healthy to the group given the challenging property sector in Malaysia. The new business segment will allow the group to capture the business opportunities from the pandemic. In view that the plastic film manufacturing segment will start to commence its operations from March 2021 onwards, we think Scanwolf is on track to grow its revenue for the upcoming financial years. However, key things to monitor will be the Group’s execution capability on the new business segment as we think the Group might take a longer time to turn the new segment into a profitable. Scanwolf is trading at around 12x PE (annualised its 3QFY21 earnings) which in our opinion is undemanding. Technical R1, R2, R3 0.38, 0.41, 0.48 S1, S2 0.30 , 0.275