A winding road in Flexidynamic’s IPO journey but probably better be late than never

THE timing of Flexidynamic Holdings Bhd’s initial public offering (IPO) exercise is an interesting one not because its core business entails the design, engineering, installation and commissioning of glove chlorination systems which many investors may not be familiar with.

What interest investors will probably be its connection to glove industry bearing in mind that many glove stocks – even the Big Four players – are no longer enjoying the limelight they used to enjoy at the height of the COVID-19 pandemic

The group which is en route to a listing on the ACE Market of Bursa Malaysia on March 30 (according to its prospectus) has expected to raise RM15.05 mil from the issuance of 75.2 million new shares at 20 sen/share.

Besides utilising 42.4% of the proceeds for repayment of bank borrowings drawn to fund its acquisition of new factories, 2.8% and 10.8% of the proceeds are allocated for renovation of new factories and acquisition of machinery and equipment respectively.

Customers for the group’s on-line and off-line glove chlorination systems comprise glove manufacturers and glove-dipping line manufacturers.

In its IPO review of Flexidynamic, PublicInvest Research pointed to the company’s total order book amounting to RM84.63 mil, of which RM4.85 mil of the secured total order book has been billed as of Feb 10.

Delving on revenue and profitability matters, the research house highlighted that the pricing of Flexidynamic’s glove chlorination systems as well as storage tanks and process tanks varies from customer to customer as they are tailor-made to customers’ specifications.

“The profitability is further swayed by fluctuation in prices of its raw materials as well as subcontractors’ cost,” projected PublicInvest Research.

While the group’s business is not significantly affected by seasonal/cyclical effects, the research house stressed this hard reality – the size of orders from customers varies with demand for its main products/services being highly driven by the capital expenditure for plant and machinery within the glove manufacturing industry which is correlated with the anticipated demand of gloves worldwide.”

All-in, PublicInvest Research has derived a fair value of 25 sen for Flexidynamic, pegging a 12 times price-to-earnings ratio (PE) multiple to the company’s FY2021F earnings per share (EPS) of 2.1 sen.

“We are ascribing a circa 50% discount to Bursa Malaysia Industrial Product and Services Index’s PE multiple of 23.9 times,” justified the research house.

“We believe that the discount is justifiable on account of its smaller market cap as compared with its peers. Leveraging on its competitive strengths, Flexidynamic is well-positioned to capitalise on the growth in the rubber glove manufacturing activities in Malaysia.” – March 16, 2021

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