10 Things To Know About CEKD Berhad Before You Invest

Die-cut solutions provider, CEKD Berhad (KLSE: CEKD) made a strong debut on the ACE Market of Bursa Malaysia on 29 September 2021. Shares closed at 54.5 sen, up 13.5% from its initial public offering (IPO) price of 48 sen. 

The IPO is expected to give the group more visibility and aid in the expansion of the business. If you are looking at CEKD with interest, here are 10 things to know before you invest.  

1. Business overview

CEKD is a die-cutting solutions provider, and is involved in the manufacturing of die-cutting moulds and trading of related consumables, tools and accessories, mainly to the paper printing and packaging industry, electrical & electronics (“E&E”) industry, and other industries such as automotive, plastic packaging, textile and leather industries. From time to time, the group also assists its customers to convert their raw materials into semi-finished die-cutting moulds. 

Its die-cutting moulds and tools are used in:

  • Paper printing and packaging industry to die-cut paper boxes and cartons;
  • E&E industry to die-cut electrical components which are then used in electrical products such as television panels, laptops, hard disks, audio speakers, remote products such as television panels, laptops, hard disks, audio speakers, remote controllers and washing machine panels;
  • Automotive industry to die-cut parts such as engine gasket, emblem, fabric and leather materials to wrap interior components such as steering wheel, car seat and sun visors; 
  • Plastic packaging industry to die-cut plastic materials which are then made into plastic packaging boxes; and
  • Textile and leather industries to die-cut fabrics and leathers which are then made into clothing, shoes, cushions and seat covers for furniture and car seat. 

(Source: IPO prospectus)

CEKD’s group structure is as follows:

(Source: IPO prospectus)

2. Principal markets 

The breakdown of the group’s revenue for the financial year ended (FYE) 31 August 2018 to 2020 and financial period ended (FPE) ended 31 March 2021 is as follows: 

Others 4,29414.94,58816.23,79514.42,65915.0

Note: Others comprise mainly Australia, Vietnam, Thailand, Philippines and United Arab Emirates, each representing not more than 5.0% of revenue.

(Source: IPO prospectus)

CEKD’s principal market is Malaysia, which contributed 85.1%, 83.8%, 85.6% and 85.0% of the group’s revenue for FYE 2018 to 2020 and PFE 2021 respectively, with the remaining revenue generated from overseas market. The remaining percentage of its revenue for the financial years under review was mainly derived from the following countries:

United Arab Emirates1.

Note: Others comprise Bangladesh, Brunei, Cambodia, Germany, Hong Kong, Japan, Korea, Latvia, Netherlands, Pakistan, Poland, Indonesia, Singapore, Switzerland, Taiwan and USA, each representing not more than 1.0% of revenue for PFE 2021.

(Source: IPO prospectus)

3. Major customers 

CEKD has a large and diverse customer base of 1,309 customers and is not dependent on its major customers. Its top 5 major customers contributed 28.1%, 25.6%, 28.5% and 24.6% of the group’s revenue for the past FYE 2018 to 2020 and FPE 2021 respectively. 

CEKD’s customers are operating in various industries ranging from paper printing and packaging, E&E, automotive, plastic packaging, textile and leather industries. Given its large customer base and the diverse industries that they are operating in, the group is not dependent on any particular customer or industry for its business.

That said, CEKD does not have long-term contracts with its customers as they would typically purchase from it on a weekly or monthly basis.  

4. Business strategies 

CEKD’s business objectives are to maintain sustainable growth in its business and create long-term shareholder value. To achieve these objectives, the group will implement the following business strategies over the period of 24 months from the date of listing:

  1. Investing in 2 new factories in Kepong within 24 months from the date of listing, to consolidate its wholly-owned subsidiary, Hotstar’s operations which are currently located in 3 separate factories in the 2 new factories. The group has identified a suitable factory unit within the same vicinity and have entered into a sales and purchase agreement on 11 May 2021, which will be financed via its IPO proceeds.

    As the size of the new factory purchase in May 2021 is insufficient to consolidate all 3 rented properties, CEKD is still in the midst of identifying another suitable factory within the same vicinity, which will be financed through bank borrowings, and/ or internally generated funds; 
  1. Investing in new machineries and upgrade its computer software within 24 months from the date of listing to enhance its production capability, automate certain production processes and to cater for future business growth; and
  1. Increase its export revenue by leveraging on its existing customers who have business operations in Southeast Asia. In addition, the group will participate in trade exhibitions and conduct product demonstration sessions for existing and prospective customers to enhance product awareness and raise its profile overseas.

5. Use of IPO proceeds

The gross proceeds arising from the IPO of approximately RM24.28 million will be utilized in the following manner: 

(Source: IPO prospectus)

6. Prospects

According to an independent market research report by Protégé Associates, the market size of die-cutting tools manufacturing industry was valued at RM216.52 million in 2019. 

Protégé Associates has projected the die-cutting tools manufacturing industry in Malaysia to expand by a CAGR of 3.2% from RM216.52 million in 2019 to RM261.04 million in 2025.

The demand for die-cutting tools is reliant on its end-user markets. The end-user markets consist of industries that ultimately use the intermediate metal products produced by the die-cutting tools manufacturing industry. These end-users are primarily manufacturers of various products, ranging from E&E, food and beverage packaging to products of automotive, aerospace, telecommunication, construction as well as oil and gas.

With a multitude of end-user markets to service, the die-cutting tool manufacturing industry can look forward to growing demand from these markets. In Malaysia, the growth in demand for the various end-products is supported by the growing affluence of Malaysians. The higher disposable income among Malaysians is likely to lead to greater consumption of various types of products, and in turn, spur demand for die-cutting tools. 

7. Financial highlights

The following table sets out the financial highlights of the group for FYE2018 to 2020 and FPE 2020 to 2021: 

(Source: IPO prospectus)

8. Dividend policy

CEKD presently does not have any formal dividend policy. Upon listing, the Board intends to adopt a dividend policy to allow the group’s shareholders to participate in the profits of the group while ensuring sufficient funds for continuing operations and future growth. The dividends paid for the financial years under review are as follows: 

(Source: IPO prospectus)

9. Substantial shareholders 

The substantial shareholders in the group before and after the IPO are set out below:

(Source: IPO prospectus)

Mr. Yap Tian Tion and Ms. Yap Kai Ning also serve on the Board as Deputy Executive Chairman and Managing Director of CEKD. 

10. Current valuation  

With a closing share price of RM0.52 as at 1 October 2021, CEKD is currently trading at a market capitalisation of RM101.18 million (based on enlarge number of shares of 194.57 million). This translates to a price earnings ratio (PE) of 16.75 times (based on FYE 2020 profits) 

Historically, CEKD has not been able to achieve meaningful growth in revenue and profits from FYE 2018 to 2020. In fact, revenue and profits have declined 8.27% and 11.21% respectively over the same period. However, the group has is financially stable and is flushed with cash subsequent to the IPO. Since this is a new listing, investors should wait and monitor if the management can execute its business plans and deliver on its commitments. 

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