Will Volcano follow Flexidynamic’s footstep to an ‘eruptive’ IPO reception?

ACE Market-bound Volcano Bhd, an international manufacturer of nameplates and plastic injection moulded parts, would surely wish to emulate the initial public offering (IPO) feat of glove industry service provider Flexidynamic Holdings Bhd last week – an oversubscription rate of 155.72 times which is the highest ever for an IPO in the past three years.

Volcano’s IPO entails a public issue of 25 million shares and an offer for sale of 35 million shares at an issue price of 35 sen/share.

The group which listing date is tentatively fixed on April 6 plans to utilise RM5.55 mil from the proceeds for machinery and equipment purchase with RM3.2 mil allocated for listing expenses.

Assessing Volcano’s financials, PublicInvest Research opined that the company’s business is not significantly affected by seasonal or cyclical effects although the size of orders received from customers varies while the demand for its products and services is highly driven by the anticipated growth of end-user industries such as electrical & electronic (E&E) and automotive which depend particularly on the overall economic growth.

Moreover, the group’s profitability is further swayed by fluctuations in labour cost, overheads and material cost, primarily.

Without the IPO expenses, the VOLCANO’s profit after taxation is RM7.8 mil, RM5.4 mil and RM3.8 mil which translates to a profit after taxation margin of 13.3%, 9.6% and 7.3% for FY2018, FY2019 and FY2020 respectively.

“Notably, revenue contribution from Singapore which is the principal market for Volcano’s nameplates product decreased from RM28.1 mil in FY2018 to RM23.1 mil in FY2020,” observed the research house.

“This was mainly due to decreasing orders from its customer, Hewlett Packard as a result of the changes in sales mix towards non-metal nameplates with lower average selling prices (in view of cost-cutting measures and differentiation in business strategy) and disruption of operations caused by the outbreak of COVID-19.”

In a related development, PublicInvest Research noted that Volcano does not have any long-term contracts with its customers as its sales are made based on confirmed orders.

As of Feb 22, the company’s outstanding confirmed orders for nameplates and plastic injection moulded parts stood at circa RM4.2 mil and RM2.2 mil respectively which are expected to be delivered within four weeks.

All-in, PublicInvest Research derived a fair value of 38 sen for Volcano based on a price-to-earnings ratio (P/E) valuation approach.

“Leveraging on its competitive strengths, Volcano is well-positioned to capitalise on further development in the E&E and automotive industries,” added the research house. – March 25, 2021


Photo credit: The Star


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