PublicInvest Research sees fair value for Eversafe Rubber at 40 sen

KUALA LUMPUR: PublicInvest Research has accorded a fair value of 40 sen for soon-to-be-listed Eversafe Rubber Bhd, which is four sen above its offer price of 36 sen.

It said on Monday Eversafe is involved in the development, manufacturing and distribution of tyre retreading materials and operates across the value chain. 

“Commanding c.22% market share for tyre retreading materials in Malaysia, the group’s growth going forward will focus on i) increasing its export sales to overseas markets, ii) enhancing its product range through new offerings, value-adding and focus on premium products, and iii) improving efficiencies,” it said.

PublicInvest Research said Eversafe Rubber’s fair value of 40 sen was pegged to a 10.0 times PE multiple, based on our FY17F EPS of four sen. 

The IPO is expected to raise approximately RM17.3mil from the issuance of 48m new shares, with c.73% of its proceeds to be utilised for capacity expansion and enhancing automation of its operations.

Eversafe Rubber’s growth will focus on i) increasing its export sales to overseas markets, ii) enhancing its product range through new offerings, value-adding and focus on premium products, and iii) improving efficiencies. 

“The group we understand has been able to grow its overseas revenue to contribute c.57.1% for 9MFY16 from c. 54.8% in FY15,” it said.

PublicInvest Research said as one of the prominent manufacturers of tyre retreading materials in Malaysia, Eversafe Rubber is able to compete against its competitors in securing new customers as well as retaining existing ones, coupled with establishing a wide global outreach with exports to at least 23 countries for FY15 onwards. 

Its tyre retreading solutions with customisation capabilities furthermore creates value enhancements to reinforce its competitiveness in the market.

Catalysts are the increase in commercial vehicles in Malaysia, which is expected to generate higher demand for retreaded tyres; continued growth in China and Brazil for rubber compounds and higher rubber prices which can translate to higher average selling price with effective management of costs.

Key downside risks among others include (i) volatility in prices of raw materials, (ii) fluctuation in foreign exchange rates and (iii) competition from existing and new market entrants locally and overseas.