DS Sigma aims to raise RM50.15mil from its ACE market listing to expand its operations and penetrate new market areas.
PETALING JAYA: DS Sigma Holdings Bhd
, en route to list on the ACE market of Bursa Malaysia, aims to raise RM50.15mil to expand its operations and penetrate new market areas.
Based on its current and future earnings potential, TA Research believes the fair value of the stock should be about 66 sen a share. This is based on a price-to-earnings ratio multiple of 14-times its financial year 2023 (FY23) earnings per share.
The company is slated to be listed on Jan 6.
DS Sigma is a corrugated paper packaging provider operating in a highly competitive business environment and commands a market share of 2.5% within the corrugated carton industry.
TA Research believes the 66 sen a share fair value is justified after taking into account the group’s proven track record and consistently good profit margin of above 11% in the last four financial years, despite the highly competitive nature of the business.
TA Research expects revenue and core profit to decline in FY23 due to a slowdown in global consumer electronic demand. But sales are expected to pick up from FY24 onwards as the consumer electronic demand recovers and the group explores entrance into the fast growing solar photovoltaic and medical devices industries.For FY23 to FY25, TA Research expects revenue growth of minus 4.1%, 22.2% and 18.8% for FY23, FY24 and FY25, respectively. In FY22, revenue decreased by 5.2% year-on-year (y-o-y) to RM121.2mil. The drop was because of the decrease in orders from customers due to Covid-19. The group’s core profit improved marginally by 2.9% y-o-y to RM21.5mil.
Post-listing, the gearing ratio will improve from 0.27 times to 0.08 times. DS Sigma does not have a formal dividend policy but TA Research forecasts a dividend payout ratio of 20% for FY23 to FY25.
DS Sigma, which has an established track record of 20 years, provides fast delivery of goods to customers and has a lean inventory management system.
Manufacturing of corrugated paper packaging products made up the largest revenue contributor of about 80.4% of its revenue in FY22. The rest is contributed by the supply of protective packaging products.
It will use the proceeds from its initial public offering to expand operations to Penang, set up its Klang factory, buy new machinery and equipment, use automated and robotic packing machines besides honeycomb board machines, set up a packaging design and innovation centre and for working capital.
It conducts its sales via direct channels (80.7% in FY22), with the bulk of customers consisting of consumer electronic products manufacturers and the remaining being parts and other manufacturers.
The group plans to introduce a new type of paper pallet using a honeycomb board and introduce six-colour printing on its corrugated cartons. It also plans to expand its target market to serve customers within the solar photovoltaic and medical devices industry.
