Flexidynamic Holdings Berhad (“Flexidynamic”) which is principally involved in the design, engineering, installation and commissioning of glove chlorination systems for the glove manufacturing industry – aims to raise up to RM15.05 million in proceeds at its upcoming initial public offering (IPO) on 30 March 2021. If you are looking at Flexidynamic with interest, here are 9 things to know before you invest.  

  1. Group structure and business model

Flexidynamic was incorporated as a special purpose vehicle to facilitate the listing of its subsidiaries, Flexidynamic Engineering and Flexidynamic Thailand, on the ACE Market of Bursa Malaysia. Its group structure is as follows:

(Source: IPO prospectus)

Flexidynamic’s business activities are as follows:

  1. Design, engineering, installation and commissioning of glove chlorination systems. This is complemented with its in-house manufacturing activities for centrifugal fans;
  2. Repair, refurbishment and maintenance of glove chlorination systems;
  3. Trading of replacement parts for glove chlorination systems;
  4. Design and installation of storage tanks and process tanks; and
  5. Other products and services including Fibre-reinforced Plastic (FRP) lining services and scrubber systems. 
  1. What is glove chlorination?

Glove chlorination is a finishing step in the glove manufacturing process and is a widely-adopted method to produce powder-free natural rubber gloves and synthetic rubber gloves. 

Chlorination involves the washing of rubber gloves in a diluted chlorine solution. Chlorination is done to harden the surface of rubber gloves which then reduced the friction of the inner surface of the rubber gloves, thus eases the donning of rubber gloves without the need or using powder. Rubber gloves may undergo double chlorination in order to receive treatment on both the inner and outer surfaces. For the manufacturing of natural rubber gloves, chlorination breaks down and reduces the level of extractable latex proteins which may cause latex allergic reactions to the wearer.  

The diagram below depicts the application of glove chlorination systems in a glove-dipping line, also known as glove manufacturing line:

(Source: IPO prospectus)

Flexidynamic is principally involved in the design and engineering of customised on-line glove chlorination systems, as well as the installation and commissioning of the systems at customers’ project sites. The group outsources the manufacturing works for its online glove chlorination systems to subcontractors, except for the manufacturing of centrifugal fans which it retains in-house. Its on-line glove chlorination system comprises chlorine circulation system, neutralizer supply system, scrubber system, and process tanks as well as chlorination gas systems that are installed as part of the glove-dipping lines to perform the glove chlorination process. 

Flexidynamic’s on-line glove chlorination systems are developed in-house with the capability and expertise of its engineering team. While each glove chlorination system performs similar functions, every system is customised according to customers’ requirements such as individual system layout, operational capacity and operational speed, to meet their production needs. 

  1. Geographic and activity segmentation   

For the past 3 financial years (FYEs) ended 31 December 2017 to 2019 and 9-months financial period (FPE) ended 30 September 2020, sale of glove chlorination systems was the largest revenue contributor to the group at 64.0%, 71.8%, 62.8% and 58.2% of total group revenue respectively. The breakdown of the group’s revenue segmentation by principal activity is as follows:

(Source: IPO prospectus)

Meanwhile, for the past 3 FYEs 2017 to 2019 and FPE 2020, the group derive its revenue mainly from Malaysia, with the percentage contribution at 81.8%, 78.1%, 68.2% and 86.3% respectively. This is not surprising as Malaysia is a major producer of rubber gloves and is the world’s largest glove exporter. In terms of foreign sales, contributions are coming from customers in Vietnam, Thailand, Indonesia and Sri Lanka. The breakdown of the group’s revenue segmentation by geography is as follows:

(Source: IPO prospectus)

  1. Major customers

Flexidynamic’s customers are mainly glove manufacturers and glove-dipping line manufacturers. The group’s order book depends on its customer’s respective manufacturing and expansion plans, which are driven by the anticipated demand for gloves worldwide. Some of its notable customers are as follows:

CompaniesCountry
Hartalega GroupHartalega Sdn Bhd, Hartalega NGC Sdn Bhd and Hartalega Sdn BhdMalaysia
Kossan GroupKossan Latex Industries (M) Sdn Bhd, Ideal Quality Sdn Bhd, Perusahaan Getah Asas Sdn Bhd and Wear Safe (Malaysia) Sdn BhdMalaysia
Riverstone GroupRiverstone Resources Sdn Bhd and Eco Medi Glove Sdn BhdMalaysia
Sri Trang GroupPremier System Engineering Co Ltd, Sri Trang Gloves (Thailand) Co Ltd (previously known as Siam Sempermed Corp Ltd) and Sri Trang Gloves (Thailand) Public Co LtdThailand
YTY GroupGreen Prospect Sdn Bhd and YTY Industry Sdn BhdMalaysia
Central Medicare Sdn BhdMalaysia
Ever Global (Vietnam) Enterprise CorporationVietnam

In the past 3 FYEs 2017 to 2019 and FPE 2020, Flexidynamic’s major customers contributed between 77.6% and 86.8% of total group revenue. In fact, Flexidynamic’s largest customer was Hartalega Group which contributed 34.0 %, 31.8%, 40.9% and 32.0% of its total revenue respectively. Hartalega Group has been its major customer since 2013. Despite the absence of long term contracts, Flexidynamic believes that its long-term relationship with Hartalega Group has allowed the group to continue to secure new contracts which is in line with Hartalega Group’s plan to expand its production capacity. Nevertheless, the high dependency on major customers is something investors should be mindful of. 

  1. Utilisation of IPO proceeds

Flexidynamic intends to use the IPO proceeds raised of approximately RM15.0 million as follows:

  • RM6.4 million or 42.4% is earmarked for repayment of bank borrowings drawn to fund the acquisition of new factories;
  • RM0.4 million or 2.8% is for renovation of new factories; 
  • RM1.6 million or 10.8% is for acquisition of new machinery and equipment; 
  • RM3.6 million or 24.0% is to be used as working capital; and lastly
  • RM3.0 million or 20.0% is to fund listing expenses. 
  1. Business strategies and prospects

A summary of the group’s business strategies and prospects are set out below:

  1. Flexidynamic is in the process of acquiring 2 new factories and intends to purchase additional machinery to enhance its manufacturing capability by undertaking the manufacturing of long and cylindrical products in-house. A total of RM6.8 million from its IPO proceeds have been allocated to repay the bank borrowings (RM6.4 million) and to fund the renovation (RM0.4 million) of the 2 new factories; and RM1.6 million has been allocated to fund the purchase of machinery and equipment.

The new factories will be installed with new machinery and equipment used to carry out in-house manufacturing works for long and cylindrical parts and components of its glove chlorination systems such as storage tanks, scrubber towers, chimney and ducting. 

  1. Flexidynamic plans to grow its chlorination business in Malaysia, Thailand and Vietnam by securing local glove manufacturers as its new customers, and supporting its existing customers as they set up or expand their product plants overseas. Its sales and marketing activities shall include the following:
  1. Actively approach new customers within the glove manufacturing and glove-related companies;
  2. Actively engage and build business relationships with existing customers and business associates for referrals; and
  3. Continuously participate in networking and marketing events held among glove manufacturing and glove-related companies such as the International Rubber Glove Conference and Exhibition that will be held in Kuala Lumpur in August 2021. 
  1. Key industry players and estimated market share

An independent market research report by Smith Zander has identified a total of 7 companies as key industry players in the glove chlorination manufacturing industry. The basis for selection is that the business activities of these companies include the design engineering, installation and commissioning of complete glove chlorination systems. Nevertheless, some of these companies may also be involved in other business segments such as glove-dipping lines, air pollution control systems, ducts, piping and tanks, amongst others. The list of key industry players in the glove chlorination manufacturing industry in Malaysia are shown as follows: 

(Source: IPO prospectus)

The same independent market research report also estimates the glove chlorination manufacturing industry size in Malaysia was approximately RM83.0 million in 2019. The segmental revenue of Flexidynamic, derived from the design, engineering, installation and commissioning of glove chlorination systems was RM31.3 million for the FYE 31 December 2019, and thereby, Flexidynamic captured a market share of 37.7% in 2019. 

  1. Substantial shareholders 

The diagram below presents Flexidynamic’s group structure after the IPO:

(Source: IPO prospectus)

Tan Kong Leong is Flexidynamic’s Managing Director and largest shareholder. He is responsible for determining the strategic direction as well as overseeing the overall business development of the group. Mr. Tan’s spouse, Phitchaya Arsangku, is a Thai national, and is a Director of Flexidynamic Thailand.  

Liew Heng Wei is Flexidynamic’s Executive Director and major shareholder. He is responsible for overseeing the overall operational processes of the group, including amongst others, overseeing the manufacturing of its products and systems, supervising subcontractors’ works, managing foreign workers as well as identifying and sourcing suitable suppliers. 

Mr. Liew’s spouse, Lion Suk Chin, is also an Executive Director of the group. She is responsible for implementing, monitoring and managing the group’s operational processes including administrative functions, human resource management as well as compliance with rules and regulations and industry best practices. 

  1. Financial Highlights  
Financial Year End (FYE) / Financial Period End (FPE)
FYE 2017FYE 2018FYE 2019FPE 2019FPE 2020
RM’000RM’000RM’000RM’000RM’000
Revenue 29,90248,32249,83935,09335,007
Gross profit 8,45511,99113,9568,0137,701
Profit after tax (attributable to owners of the company)4,3964,2894,6052,0192,705
Gross profit margin (%)28.324.828.022.822.0
Profit after tax margin (%)14.89.19.25.87.6
Effective tax rate (%)4.617.927.127.530.0
Diluted EPS (sen) 1.551.511.620.710.95

(Source: IPO prospectus)

Flexidynamic is a profitable company. While its revenue has increased by 66.7% from RM29.9 million in FYE2017 to RM49.8 million in FYE2019, profits have only improved by 4.8% over the same period. In fact, profit after tax margins have decreased in FYE 2018 and FYE 2019 in part due to the significant increase in effective tax rate. Its subsidiary, Flexidynamic Engineering, was entitled to pioneer status incentives for small scale companies under the Promotion of Investments Act, 1986 (Amendment) to produce on-line chlorination system and the profit derived from these activities is 100.0% exempted from tax for a total relief period of 5 year from manufacturing date, i.e. 10 May 2013 to 9 May 2018. Subsequent to 9 May 2018, the group started paying tax for the profit generated from the provision of on-line chlorination system. 

Post IPO and utilisation of IPO proceeds, Flexidynamic is forecasted to have a gearing ratio of 0.17 times. Separately, the group has not announced any formal dividend policy in its IPO prospectus.  At a proposed IPO price of RM0.20, shares of Flexidynamic will be trading at a trailing price to earnings (PE) ratio of 12.3 times. Given the reasonable valuation and the recent positive investor sentiment, it is not surprising that its IPO has been oversubscribed by 155.72 times

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