June 20

UWC IPO: 8 Things to Know about it before Subscribing

0  comments

UWC IPO has launched on 17 June 2019, offering 70 million new shares to the public and an offer of sale of 33.01 million existing shares at an IPO price of 82 sen per share.

Its IPO document can be downloaded here: 

UWC Bhd IPO

Part 1

UWC Bhd IPO

Part 2

Upon its listing, UWC will have a market capitalisation of RM300.77mil based on the issue/offer price of 82 sen and its enlarged share capital of 366.80mil.

The application will be closed at 5.00 p.m. on 28 June 2019. Its shares would be listed on Bursa Malaysia on 10 July 2019.

Question: ‘Should I subscribe to UWC IPO shares?’

Personally, I suggest that you take time to read its IPO document. But, if time is of the essence, here, I have summarized 8 main takeaways on UWC Bhd so that you can decide whether or not you should invest in its shares.

#1: Business Model

 

Source: Page 71 of UWC Bhd’s IPO

UWC Bhd provides precision sheet metal fabrication and value-added assembly services in its new plant measuring 255,364 sq. ft. at Batu Kawan, Penang. They involved cutting, forming, and joining sheet metals and metal blocks into pieces of metal parts and precision components.

From it, its end-products could either be delivered to its clients or assembled into machine structures, enclosures and chassis before delivery to its customers.

#2: Geographical Markets

UWC Bhd’s primary market is in Malaysia where it contributed 58.6% of its total revenues in 2018. Its remaining 41.4% of revenues were contributed by exports to Singapore, the United States, France, China and the United Kingdom.

 

blank

Source: Page 96 of UWC Bhd’s IPO

#3: Financial Track Record

For the last 3 years, UWC Bhd has achieved growth in group revenues, up from RM 76.3 million in 2016 to RM 136.5 million in 2018. It is because the company has received higher orders from its main customers.

As such, it has contributed to an increase in adjusted profit after tax (PAT) from RM 8.5 million in 2016 to a total of RM 23.2 million in 2018.

Figures in RM ‘000 unless stated otherwise

Year

2016

2017

2018

Group Revenues

76,311

92,158

136,495

Shareholders’ Earnings

8,486

11,604

23,213

Earnings per Share (Sen)

2.3

3.2

6.3

Return on Equity (%)

13.52%

15.59%

27.58%

Source: Page 11 and 141 of UWC Bhd’s IPO

Read also: 3 Small Cap Stocks with Consistent Dividends over last 5 Years

#4: Balance Sheet Strength

As of 31 January 2019, UWC Bhd has total borrowings of RM 49.15 million and RM 101.51 million in shareholders’ equity. Thus, it has a gearing ratio of 48.4%.

In addition, it has current assets of RM 86.26 million and current liabilities of a total of RM 40.62 million. Thus, it has a current ratio of 2.12.

Year

2016

2017

2018

31 Jan 2019

Current Ratio

2.04

1.65

1.72

2.12

Gearing Ratio (%)

23.34%

33.52%

60.99%

48.41%

Calculated from Data Sourced from UWC Bhd’s IPO

#5: IPO Proceeds

blank

Source: Page 22 of UWC Bhd’s IPO

UWC Bhd intends to raise RM 57.40 million in gross proceeds. Out of which, the company plans to use it in the following:

1. Purchase of CNC Machines: RM 27.42 million

Presently, UWC Bhd has 166 units of CNC Machines. It intends to acquire a total of 29 units of CNC Machines, lifting its number of CNC Machines to 195 and will increase its fabrication and machining capacity by 18.6%.

blank

Source: Page 23 of UWC Bhd’s IPO

2. Purchase of Industrial Robotic Arms & Material Handling System: RM 4.70 million

UWC Bhd plans to acquire 18 industrial robotic arms and one material handling system to further automate its manufacturing processes, which in turn, reduces its dependency on human labour and production costs. This allows UWC Bhd to enjoy approximately RM 0.9 million in cost savings a year as a result of reduced labour costs in the immediate future.

3. Repayment of Bank Borrowings: RM 18.00 million

UWC Bhd has obtained term loans from Public Bank Bhd and Hong Leong Bank Bhd at interest rates of 4.52% and 4.85% per annum respectively. By repaying a total of RM 18.00 million in term loans, UWC Bhd expects to enjoy interest cost savings of RM 0.8 million per annum.

4. Working Capital: RM 2.87 million

UWC Bhd budgets RM 2.87 million in working capital, reserve for the purchase of raw materials such as sheet metals, metal blocks, parts and components.

5. Listing Expenses: RM 4.42 million

 

#6: Management

The following is a list of major shareholders of UWC Bhd upon listing:

No.

Main Shareholders

Shareholdings (%)

1

UWC Capital

52.6%

2

Dato’ Ng Chai Eng (Dato’ Ng)

9.1%

3

Lau Chee Kheong (Lau)

9.1%

Source: Page 32 of UWC Bhd’s IPO

Both Dato’ Ng and Lau are major shareholders of UWC Bhd through their direct shareholdings in UWC Bhd and majority interests in UWC Capital.

Dato’ Ng is appointed as UWC Bhd’s Executive Director & Group CEO. Lau sits in the board as Executive Director & Group COO. Ng Chee Liang, son of Dato’ Ng is the Head of Corporate Affairs and Communication. Ng Sze Yan, who is the niece of Dato’ Ng is UWC Bhd’s Head of Operations.

#7: Major Risk

UWC Bhd is subjected to concentration risk as it derived 80.4% of its revenue in 2018 from 5 key customers. Hence, its future financial results are dependent on them. They include:

blank

Source: Page 106 of UWC Bhd’s IPO

#8: Valuation

At current offer of RM 0.82 per share, UWC Bhd’s IPO shares are offered at P/E Ratio of 13.02 and P/B Ratio of 2.96 (based on net assets of 27.7 sen).

The company intends to adopt a dividend policy of a minimum of 20% of profit after tax (PAT). In 2018, it made 6.3 sen in adjusted EPS. Thus, it would pay out a minimum of 1.26 sen in dividends per share (DPS), offering a dividend yield of 1.54% per annum.

Conclusion:

Overall, UWC Bhd has recorded improvements in financial results for the past 3 years. However, it remains highly dependent on 5 key customers for its financial results in the future.

So, the question remains: ‘Should I subscribe to UWC Bhd’s IPO shares?’

You decide.

 


FREE Download – “7 Top Stocks Flashing On Our Watchlist”

Psst… We’ve found 7 exciting companies that are poised to skyrocket >100% in the years to come. Simply click here to uncover these ideas in our FREE Special Report!

 


Tags

UWC, UWC berhad, UWC bhd IPO, UWC IPO


You may also like

5 Things to Know Before Investing in Stocks

Alliance Healthcare Stock Review – 4 Reasons To Like About This Defensive Healthcare Company

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Subscribe to our newsletter now!

>