8 things to know about Coraza Integrated Technology Berhad before you invest

Integrated engineering support services provider, Coraza Integrated Technology Berhad (“Coraza”), expects to raise RM33.0 million from its initial public offering (IPO) on the ACE Market of Bursa Malaysia. 

The IPO is expected to give the company more visibility and aid in the expansion of the business. If you are looking at Coraza with interest, here are 8 things to know before you invest.  

1. Business activities

Coraza is an integrated engineering supporting services provider. It is principally involved in the fabrication of sheet metal and precision machined components, as well as the provision of related services, such as R&D and value-added sub-module assembly services.

The company caters its services to a wide range of industries, including semiconductor, instrumentation, life science and medical devices, telecommunications, aerospace and electrical & electronics (E&E). The company’s revenue contribution by industry is as follows:

(Source: IPO prospectus)

As at 30 June 2021, the company occupies a 1.5-storey factory measuring 93,219.7 sq. ft., running two 12-hour shifts a day in a 6-day work week. It has 75 units of machinery, comprising bending, cutting, milling, welding and tapping machinery, which cater to various customer requirements. 

The company’s production process is depicted as follows:

(Source: IPO prospectus)

Coraza conducts joint product development with its customers. The company will collaborate with them on the design and development of their products to produce a prototype of the product. Once the prototype has been confirmed, then the planning for production begins. The nature of the design and development activities differs for each product. 

2. Principal markets and major customers

Coraza’s main operations are in Malaysia and Singapore. The company does not maintain an order book, as its sales are based on purchase orders. For the financial year ended (FYE) 31 December 2020, the company’s revenue contribution from Malaysia and Singapore was 70.7% and 21.5% respectively. 

Coraza’s focus is to provide engineering support to its customers, several of whom are large multinational corporations (MNCs). For the FYE 2020, its top 5 customers contributed 86.2% of the company’s revenue.  

Customer concentration risk is high and the loss of a major customer can severely impact its financial performance. That said, the company has an established track record, as it has more than 10 years of business relationship with 4 of its major customers.  

(Source: IPO prospectus)

3. Business strategies 

Coraza’s business strategies are to maintain sustainable growth and create long term shareholder value. To achieve its business objectives, the company will implement the following business strategies over the period of 36 months from the date of listing: 

a. The company plans to construct a new factory on Lot 2773 & 2776, which is adjacent to its current factory in Nibong Tebal, Pulau Pinang over 3 phases, within the next 2 years. This is to expand its production capacity and enable the company to provide new services to customers in the future. Phase 1 of the construction is expected to be completed by February 2023 and it expects to commence operations therein by March 2023.

b. In conjunction with the construction of its new factory, the company plans to purchase new machinery progressively over the next 3 years for its existing and new factories, which will improve its production capacity by a further 25%, as well as its service offerings.

4. Use of IPO proceeds

The gross proceeds arising from the IPO of approximately RM33.0 million will be utilised in the following manner: 

(Source: IPO prospectus)

5. Industry prospects and competitive landscape

As set out in the Independent Market Research report in the IPO prospectus, the engineering support industry (ESI) in Malaysia is projected to expand from 7.24 billion in 2021 to RM10.16 billion in 2025, at a compound annual growth rate (CAGR) of 10.3% for the period. 

The ESI industry in Malaysia can be characterized as a highly competitive landscape whereby industry players compete fiercely against one another to gain market share. It is estimated that there are approximately 2,000 market players, comprising domestic and foreign companies establishing manufacturing bases in Malaysia. 

For the FYE 2020, Coraza generated revenue of RM83.7 million, equivalent to 1.3% share of the total size of the ESI in Malaysia of RM6.23 billion in 2020. 

The table below shows a comparison between Coraza and selected industry players in ESI in Malaysia. 

Indicator Coraza Alpha Frencken Kobay Synturn UWC
Information from FYE 31 December 2020 31 December 2020 31 December 2020 30 June 2021 30 June 2021 31 July 2020
Revenue (RM’000) 83,686 60,663 214,436 156,991 221,236 219,050
Profit/(loss) before tax (RM’000) 10,500 (3,472) 13,202 35,383 43,102 72,629
Profit/ (loss) after tax (RM’000) 8,016 (4,672) 13,066 26,933 38,451 57,764
Profit before tax margin (%) 12.5 -5.7 6.2 22.5 19.5 33.2
Profit after tax margin (%) 9.6 -7.7 6.2 17.2 17.4 26.4

(Source: IPO prospectus)

6. Financial highlights

The following table sets out the financial highlights of the company for FYE 31 December 2018 to 31 December 2020 and financial period ended (FPE) 30 June 2020 and 30 June 2021: 

(Source: IPO prospectus)

Coraza presently does not have any formal dividend policy. The following table sets out the dividend declared and/or paid for the previous financial years / period: 

(Source: IPO prospectus)

7. Promoters and substantial shareholders 

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

(Source: IPO factsheet)

Mr. Paul Heng Weng Seng is the company’s promoter and non-independent non-executive director. In 2003, he invested in company though Armour Holdings. He has not had any role in Coraza other than being a non-executive member of its board of director since 3 May 2021. 

Ms. Liew Sow Ying is the spouse of Mr. Lim Teik Hoe, the company’s Managing Director. Currently, she does not hold any executive role in the company. 

Mr. Lim Teik Hoe is the company’s Managing Director. He is responsible for implementing the company’s business strategy and managing its overall operations and resources. He also oversees the sales and marketing department. 

8. IPO valuation  

With an IPO price of RM0.28, Coraza will have a market capitalisation of RM119.9 million (based on enlarge number of shares of 428.33 million). This translates to a price earnings ratio (PE) of 19.0 times (based on FYE 31 December 2020 profits). 

As with all new listings, investors should wait and monitor if the management can execute its business plans and deliver on its commitments, before rushing to make an investment.  

Tags:

Add a Comment

Your email address will not be published.